Notes From The Margin

April 4, 2008

Beachfront Development In Barbados, A Look Into The Future…

Now that the dust has had a chance to settle, we on the margin have been reflecting on the sale of Cheffette Holetown. At $40 Million for the site Cheffette would have taken the offer. How many years of profit is that from the Restaurant? Further that’s enough money that they could build a second restaurant nearby and still have money left over. As a business deal this is fairly straight forward, Cheffette got an offer that was simply too good to turn down and that is that.

From an economic point of view, the Holetown site in condos will contribute more to the economy than it would as Cheffete. Certainly it would be part of the foreign exchange earning sector rather than being a user of foreign exchange. Economically this is good for Barbados as well.

However one of the very few remaining windows to the sea will close when condos go up on the site. Locals will have to go in either at the Holetown Police Station (the old Pizza House restaurant) or go all the way up past Sandy Lane to access the beach. Heading south after that we believe the next opportunity for beach accesss is Paynes Bay.

Now we on the Margin can’t argue with Condos, but we do have a specific issue with beach development. The development of a condo project allows the developer to make his money back quickly, with relatively little risk. A hotel means that the developer takes the business risk and all of the headaches that come with running a hotel. So if you are a developer, a condo is lower risk for a higher return and an extremely quick payback period. This is why hotels are closing for condos, we on the margin doubt that anything the new administration does will change this. (Despite what Mr. Loveridge says)

The other factor at work here is that there’s only so much beach front land in Barbados. The simple law of supply and demand means that prices for land on the coast will skyrocket in the face of huge demand fed from outside of the island. Hence we can hear about $40 million being paid for a relatively small piece of land. Remember all of those little chattel houses in the Garden in St. James? Little gold mines each one of them.

Now because the land costs are skyrocketing developers need to do two things 1. increase the value of each condo unit and 2. increase the number of units on the lot. This means that development along the beach is going to be high value, and is going to maximise the land use (so much for beach access for locals) and further is going to go up and up and up. This results in what we are seeing at Paynes Bay in St. James where the people on the land side of highway one stop seeing the sun around 3.00pm in the afternoon each day.

If you watch the BTA advertisement above it talks about

“…an island that hasn’t been homogenised and supersized and commercialised away from even being Caribbean anymore”

While these words are being said images of high rises next to the beach are being shown.

Ironic isn’t it?

We think that there is a need for a policy intervention by Government that puts the brakes on this form of development. Now this will have to be done with a light touch otherwise we run the risk of killing the goose that laid the golden egg. One possibility is restricting future high rise structures to the land side of the road. We are not saying no to development of the coast, we are simply saying if we continue as we are going now we will end up being one of those islands that no one wants to go to. The economics of it are inexorable.

Now is the time for an enlightened policy response.

Marginal

March 19, 2008

A Suggestion on BOLT’s

Minister of Tranport, Works and International Transport John Boyce made a comment in the house yesterday about the Government’s potential use of Build Operate Lease Transfer (BOLT) arrangements in the future.

ANY FUTURE BOLT – Build Operate Lease and Transfer – arrangements that Government signs will be designed to bring economic benefits
to the country.

Minister of Transport, Works and International Transport John Boyce told the House of Assembly yesterday during debate on the 2008-2009 Estimates of Revenue and Expenditure that BOLT arrangements were supposed to generate savings and not additional costs.

The previous administration made use of several of this type of arrangement. However the nature of the implementations often left questions on the transparency of the deals. This was noted in an IMF  report on Barbados.

The report makes a number of reccomendations with regard to this Public-Private Sector arrangement.

We on the margin would be much more reassured by the implementation of a legal framework to govern the use of BOLT’s and similar arrangements than simply Mr. Boyce’s statement of “Trust us”.
Marginal

March 18, 2008

Welcome to the 5 year long election campaign!

When the dust settled on January 16th the two parties ended up being quite far apart on number of seats but actually quite close on total number of votes cast. With only an 8% difference in terms of total votes, it means that the current government is vulnerable to a 4% swing. This means that despite a comfortable majority in Parliament, the Thompson administration must politically plan from now with an eye to elections in 2013. It also means that the Mottley opposition is already keeping an eye on that year.

As a result of this we are likely to see Mr. Thompson trying to attack what has long been perceived as the BLP’s strongest point; it’s management of the economy. The BLP for it’s part will pick at every flaw in the government’s actions.

This leads to the  ludicrousness of things such as Government suddenly becoming skeptical about unemployment statistics despite never having said a word about it before or during the campaign. It certainly was not a part of their platform. They are not releasing those figures because it will reinformce the BLP’s perception of good governance.

For the BLP’s part, this whole “We don’t know why the government won’t work with our consultants” is laughable. They damn well know why and they would do the same if they were in office as well.

What it amounts to is that we are in for a five year long election campaign, with the cut and thrust of January continuing at a lower intensity until 2013

Strap yourselves in, it’s going to be a wild ride!

Marginal

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

January 31, 2008

Economic Advice From Prof. Howard

Local Economist Prof. Michael Howard who has become a regular commentator on Government’s economic policies today wrote an guest column in the daily Nation offering his views on the way forward for Prime Minister Thompson’s government and Owen Arthur’s stewardship.

His comments on former PM’s Arthur are interesting:

Whether he knew it or not, Arthur was also influenced by Rostow’s misleading “catch-up” notion of Barbados becoming a “developed country”. We may have already reached there since we are now in Rostow’s stage of “high mass consumption”.

Arthur’s expansionary policies eventually led to “overheating” of the Barbadian economy. Overheating was caused by heavy expenditure on the World Cup, the bunching of lumpy capital projects, and high levels of conspicuous consumption. The positive aspects of overheating were increased employment and economic growth.

The Barbados model has now reached a critical turning point where serious decisions have to be made to reduce high levels of spending, maintain capital controls, and curb illegal immigration. Without capital controls the exchange rate will come under significant pressure, as the economy faces a possible recession.

( If you want a quick overview of Rostow’s Theory click HERE.)

The point on the removal of capital controls we have spoken about on the margin already. It does seem to be a judgement call. As we said in our post “Capital Account Liberalisation – Good or Bad? ” it seems that no one REALLY knows what will happen when capital controls come off. Prof. Howards view that the world economic situation is less favourable MAY be right.

Interestingly his other points include tax policy:

It’s likely that it may happen in a cosmetically changed format and Thompson may claim that it was his idea! Arthur’s tax policy seemed logical to us on the margin, and it favoured gradual incremental change over a period of years rather than sharp adjustments. In lowering the income tax rate he was able to address the issues with the NIS pension fund without the population feeling poorer. With his policies he began moving the economy away from income taxes which inhibit investment and towards VAT. Arthur had indicated publicly on more than one occasion that he considered moving to one tax rate for both onshore and offshore sectors to be desirable.
On the issue of VAT Prof. Howard had this to say.
We on the margin agree with the professor on this point, and are concerned that once exceptions are made to the VAT tax, it becomes easier to make further exceptions. “You zero rated sports equipment so why not this?” Also the more zero ratings the more loopholes there are for abuse. (Are rally cars sports equipment? How about clothes to train in?) The objective is socially laudable, but we believe that the Government should find another way of achieving it.
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We aren’t sure that we agree with Prof. Howard on one of his later points on the cost of living.

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“Reliance on imported food is a major cause of the high cost of living in Barbados.”
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We believe this argument ignores the fact that (1) Many of the input into local agriculture are imported, (2) Much of the imported food is so subsidized that it lands at costs BELOW the cost of local production. While the lack of competition in the distributive sector is definitely a factor it is in our view simplistic to view them as a major part of the problem of local agriculture withering, without a full examination of ALL of the factors involved.
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That said we are happy to see input from some of the best brains “On The Hill”. Barbados is at a stage of it’s development where precious few countries have gone before. Input such as Prof. Howard’s is invaluable in helping both policymakers and the public understand the issues of the day.
Marginal

January 10, 2008

Politicians, It’s One Week Before Elections, Do You Know Where Your Vote Is?

With one week left to go before elections, Barbados is in the grips of one of the most intense election campaigns in recent memory. The two parties’ campaigns appear to be evenly matched, and evenly funded, and to a certain extent evenly supported. We on the Margin have been watching the silly season unfold in all its glory, and we have to admit we are unable to predict a winner at this stage.

Yes, if you listen to Waiting In Vain and Royal Rumble and the other party hacks that inhabit the blogosphere, they all predict a resounding victory for their particular party. But having spent the last week talking to many people, we think that both parties are “Whistling past the graveyard”. For as much bluster as either side makes we’re not sure that either of them has captured the hearts of the electorate.  Barbadians are looking at both parties with a skeptical eye and the hard truth is that this election could go either way.

What we have noted that this campaign has been more about accusations and counter accusations rather than issues. We would like to see some serious discussion about both parties’ visions for the next five years. While we wish that we could say that we thought we would get such reasoned debate in the next next week, we really don’t think so. We think that this next week will get wilder and dirtier with each passing day.

We on the margin would urge Barbadians,  think long and hard about both parties before you go into the polling booth. Whoever you choose is entirely up to you, but be sure to participate, be sure to cast your x. Be sure to treat that decision with the seriousness it deserves.  Hopefully we will all be better off for your doing so.

Marginal

November 29, 2007

Magnitude 7.3 Earthquake Hits the Caribbean

We all bolted for the door this afternoon as we felt and saw the ground shake beneath our feet. Outside other persons were rushing from buildings and car alarms were going off. By the time we realised what was going on it was beginning to subside. Everyone is asking what’s going on and no one appears to know. Calls on cell phones are met with “Network Busy”, calls on landlines are met with busy tones. No one is hurt but everyone is calling their loved ones to see that they are okay. People are sounding strained on the phone not because they are scared for themselves but because they fear for those dear to them. “My husband is on a construction site”, “My parents are on a plane coming in, will the airport be okay?” “I can’t get through to my children’s school I wonder if they are okay?”  a jumbled montage of thoughts and of concern.

It now appears that there has been a major earthquake just north of Martinique magnitude 7.3 (some sites are reporting 7.4)  it was strong enough to knock a house down in St. George, reports from friends in St. Lucia, Grenada and Trinidad have all reported feeling it and have all reported that they are fine. (thank goodness)

No word yet from Martinique or Dominica. As we get word we’ll post.

It’s a time to hug your family and count your blessings, it could have been much much worse.

Marginal

November 19, 2007

Is The Barbados Property Market A Bubble?

We on the margin have been observing the skyrocketing prices of real estate in Barbados, especially on the Platinum coast. We can well understand the logic of investing in real estate particularly on the coast in Barbados, after all there’s only so much land and they aren’t making any more of it. Traditionally real estate has been seen to be… as safe as houses.  (sorry for the pun) the old bajan saying of “Land don’t spoil” has been a truism that traditionally could be counted on as readily as the sun coming up tomorrow.

The legions of real estate agents will tell you that land has never declined in value in Barbados. In fact the tremendous appreciations in property values has attracted international attention, with international agents who market to the affluent UK market.  Now here’s where things get interesting….

The price of premium property in Barbados is out of the reach of all but a very few Bajans. And further if we’re honest much of it is already owned by BVI corporations to get around the issues of property transfer tax. The reality is that the demand for Barbados property is being driven not by the Barbados market but by the UK economy.  Suddenly things don’t look so rock solid any more.

If we then factor into the picture the possible effects of a global economic slowdown (keep an eye on that sub prime mortgage crisis) it is VERY possible that in such a scenario, Barbados’ overvalued beachfront could become just so much seawater and sand.

November 1, 2007

The National Debt and Regular Maintenance of Government Facilities.

One of the interesting things that we on the margin have always noted is that Government is very good on building new buildings but is terrible on maintaining the buildings once they are built. The QEH is a prime example of this and so is the Airport before it was rennovated.

(Photo Nicked From Barbados Free Press)

Many of the facility problems being experienced now are the result of years and years of neglect, (yes by several administrations but the current Government has overseen the last 15 of those years) to expect the hospital board to fix everything without a major capital project is like trying to bail a moses with a thimble. The real solution to the QEH facility problems is not to supply more resources to the engineering department, but to undertake a major expansion and rennovation similar to what was done at the airport. THEN they can supply more engineers and resources to maintenance.

The government should also have a look at its other buildings and the great park projects being done by BTII we’ve already had to virtually rebuild the boardwalk at the careenage and it wasn’t that old!

The budgeting process goes like this:

1. Government department has a careful assessment of it’s needs for the next financial year and submits it’s requirements to the Ministry of Finance : “I need THIS MUCH to run the Airport/hospital/treasury/transport board/////”

2. Ministry of finance says “You have this much make it work”

3. Department goes back and prioritises.

What gets cut?

Things that are not urgent but are timely things like any regular maintenance, in fact unless it’s about to fail catastrophically forget about it.

This of course piles up, you have a bus system that is in dire need of overhaul, you have a hospital that quite frankly needs to be completely rebuilt, you have government workers in the GEED building that has more leaks than roof, you have a water system that you can’t account for much of the water in (yes we know some of the figure is due to unmetered users but a big part of it is leaks).

Eventually the end consumer (us the taxpayer) begins to suffer and government comes under political pressure to do something radical and they go and borrow money for a major capital project, so increasing the national debt.

The major capital project is completed, and the department does a full assessment of what it needs to run for the next year. They go to the ministry of Finance and say “I need THIS MUCH to run the department for the next year……”

Marginal

October 18, 2007

The wider implications of Hardwood Housing, The Enterprise Growth Fund and Politicians

We on the margin have been following the first real engagement of the upcoming silly season with a passing interest. We’re sure that the other blogs will dissect the particulars of the Mascoll/Murrell/Hardwood/EGF situation ad nauseum. We would like to take a slightly broader view of this, consider the following:

  1. Government has set up the Venture capital funds like the Enterprise Growth Fund and the Innovation Fund etc. to help develop small businesses who have great ideas but limited access to capital. These funds deal specifically with entrepeneurs who would by their very nature scare a commercial bank’s risk management department.
  2. The means of functioning of these funds is to take equity positions in (invest in ownership of) these relatively high risk ventures. In doing this the funds will typically take a controlling interest and award the entrepreneur “sweat equity” if he has no funds of his own to put into the operation.
  3. The EGF and its like, ARE  government funds, (Taxpayers money) and should be subject to the PAC etc.
  4. There is considerable discretion in how these funds invest, obviously if the funds are invested badly the fund will go bankrupt so there is an economic reality that the fund managers have to deal with but they do have considerable leeway in making investment decision.
  5. It is THEORETICALLY possible for abuse to happen, for example for a politician’s friends to get preferred access to the funds (We are NOT saying that is what happened with Hardwood) and there does need to be some oversight to avoid this.
  6. It is also THEORETICALLY possible for someone with a political axe to grind to pick on a random EGF company and drag it through the mud in an effort to get some of the mud to stick to a particular politician. (Once again, we are NOT saying that is what happened with Hardwood)

 Now here’s the rub…

How many entrepeneurs are looking at the Hardwood housing political theatre show, and deciding that they will not approach the EGF because of the risk of becoming collateral damage in a political crossfire?

And just to be even handed…

What level of confidence can the EGF give to the public and politicians on their investments as they are playing with taxpayers dollars?

Let us hope that we can find an answer to this, otherwise we may be compromising one of the most promising ways to advance economic enfranchisement of our working class.

Marginal

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