Caribbean Islands - Antigua and Barbuda Economy

More information about the economy at Facts about Antigua and Barbuda.

Macroeconomic Overview

Economic growth in the early 1980s slowed after the relatively rapid expansion of the 1970s. This retardation was the result of several factors: recession in the industrial countries, trade problems within the Caribbean Community and Common Market (Caricom- -see Appendix C), and a severe drought that reduced agricultural output in 1984. Increased tourism brought a slight recovery in 1985, as the gross domestic product (GDP--see Glossary) reached US$180.3 million, or US$2,273 per capita. In 1986 GDP fell again, however, to US$109 million, or US$1,346 per capita. This represented a decline of 16 percent from the 1982 GDP of US$129.5 million and a 20-percent drop from the 1982 per capita GDP of US$1,682.

Antigua and Barbuda faced a debt situation in the mid-1980s; this was partly the result of the recession of the early 1980s, which did not support the national outlays on infrastructure and other items. In 1983 the current account deficit of the central government reached 3.8 percent of GDP, with a gross external debt of 16.3 percent of GDP. By the end of 1984, debt had reached close to US$100 million. Servicing the debt cost more than US$7.4 million per year, which represented 16 percent of government revenues. Import expenses were expected to fall in the late 1980s, and tourism revenues were expected to increase, thereby helping to narrow the balance of payments gap. The central government was reducing public expenditures and state investment because of the fiscal difficulties created by the debt problem.

The Barbudan economy differed slightly from that of Antigua proper in the late 1980s because tourism was relatively less important to the smaller island's economy. Barbuda's largest source of income was remittances from relatives working in the United States or Britain. The second largest source was a subsidy from the Antiguan government, budgeted and distributed by the warden of Barbuda, the person selected to administer Barbudan economic matters. Economic activity and employment were concentrated in fishing, followed by agriculture (especially the raising of livestock) and tourism. Other sources of income included charcoal manufacturing and salt mining. Development of peanut farming and the exploitation of the island's coconut trees offered potential.

The labor force in Antigua and Barbuda consisted of 31,500 workers in 1984. In the mid-1980s, these workers were divided fairly equally among three trade unions: the ATLU, the Antigua Workers Union (AWU), and the Antigua Public Service Association. The first two were affiliated with the two main political parties, the ALP and the Progressive Labour Movement (PLM), respectively. Workers were free to choose the union to which they wanted to belong. Hence, each industry employed members of two or three labor unions. The labor union represented by the simple majority (50 percent plus one) of workers was designated to represent all of the workers in that industry during contract negotiations. Wage contracts normally were valid for three years.

Foreign nationals were allowed work permits only if there were no local applicants qualified for a specific position. Work permits generally were granted, however, for those who were involved either directly or via their companies in an investment project considered to be important to the country. Citizens of the United States, Canada, and Britain did not need visas.

Communications on Antigua were modern and adequately served all parts of the island. On Barbuda, however, communications consisted of only a few telephones, mostly in the village of Codrington. The telephone system was well maintained, fully automatic, and had over 6,700 telephones. Radio-relay links from Antigua to Saba and Guadeloupe, a submarine cable, and a ground satellite station all provided excellent international service to both islands. Antigua had three AM radio stations broadcasting on medium wave: the government-owned Antigua Broadcasting Service on 620 kilohertz, a commercial station on 1100 kilohertz, and the religious Caribbean Radio Lighthouse on 1165 kilohertz. Two shortwave stations reached points throughout the Western Hemisphere from transmitters on the island; the British Broadcasting Corporation and Deutsche Welle of the Federal Republic of Germany (West Germany) shared one transmitter, and the other relayed programs from the Voice of America. St. John's also had two small FM transmitters on 99.0 and 90.0 megahertz and television service on Channel 10. The Workers' Voice and the Outlet were the two main local newspapers. The Herald was a new third newspaper.

The transportation system was well developed on Antigua but practically nonexistent on Barbuda. About 240 kilometers of paved or gravel roads connected all areas of Antigua. V.C. Bird International Airport, east of St. John's, had a paved runway and handled international flights. A small, unpaved strip at the southern tip of Barbuda could accommodate only small aircraft. St. John's was the main port for the islands, but smaller vessels could also dock at English Harbour on the south side of Antigua. More than seventy-five kilometers of narrow-gauge railroad track extended south and east from St. John's. These lines, however, were used almost exclusively to transport sugarcane. Neither island had significant inland waterways.

Economy

The economy underwent a substantial transformation in the twentieth century as tourism replaced sugar as the principal earner of foreign exchange and the primary source of employment. Like the previously dominant sugar industry, tourism was controlled primarily by foreign capital. This control was in part the result of insufficient domestic capital, the local upper class having made more of its investments in commerce than in entrepreneurship. In an attempt to fill the local void, the government established state enterprises. Their specific purpose was to develop areas where foreigners were hesitant to invest, such as infrastructure or the faltering sugar industry, or to create domestic competition with foreign-owned enterprises, such as those in the tourist industry. The other major sectors of the economy, especially agriculture, were not strong enough to support the tourist industry; as a consequence, many items had to be imported.

Role of Government

Although most economic activity was privately controlled and operated, state enterprises represented an important element in the economy in the late 1980s. Beginning with the electric power industry, the public sector expanded into agriculture, manufacturing, and tourism, as well as infrastructural services such as seaports, airports, roads, water supply, energy, and telecommunications. Productive enterprises included a cotton ginnery, an edible-oil plant, two large hotels, a commercial bank, an insurance company, the Antigua and Barbuda Development Bank, and most of the prime agricultural land.

The government's rationale for involvement in infrastructure and public utilities was that it contributed to firmer bases for further development. The purchase of failing enterprises, such as the sugar factory and the oil refinery, limited the anticipated increase in unemployment should the enterprises actually close. The government entered the tourist sector primarily to influence the employment practices of private investors. By keeping the stateowned resort open year round, the government was able to persuade the privately owned resorts to stay open as well, which alleviated unemployment in what had been the slow season. In addition, operation of the resort allowed the country to keep some of the tourist industry profits. In the manufacturing sector, the government constructed factory shells to be rented at low cost in order to attract foreign investment.

Despite achievements in some areas, such as tourism, the government's entrepreneurial efforts were relatively ineffective. Lacking an adequately trained managerial work force, the government often contracted with foreign nationals to run the state enterprises. In many cases, mismanagement grew out of the political patronage system used to fill senior public sector positions. Because the government also tended to act as the employer of last resort, it effectively gave a higher priority to reducing unemployment than to economically efficient use of labor. Despite its employment priority, the government was forced to shut down some operations, including the sugar factory and the oil refinery just mentioned, because they were serious financial liabilities.

Trade and Finance

Although Antigua and Barbuda was dependent on trade for its survival, it maintained large annual trade deficits throughout the 1980s. Manufactured goods, not including processed foods and beverages, comprised 59 percent of all exports in 1981. Food, beverages, and tobacco represented 20 percent, and other items accounted for the remaining 21 percent. Seventy percent of exports were destined for other Caricom countries, especially Trinidad and Tobago and Jamaica; the United States received 26 percent of Antiguan and Barbudan exports. Imports mainly came from the United States and included food, beverages, and tobacco (33 percent in 1981) and manufactured goods (25 percent). Other items accounted for 43 percent. Other major trading partners were Britain and Canada. In 1986 exports were estimated to equal US$51.8 million, whereas imports were US$74.1 million, for a trade deficit of US$22.3 million. This gap, although still large, was reduced from the 1982 level, when the trade deficit was US$90 million.

Like the economy in general, the finance industry in the 1980s was controlled largely by foreigners. Predominant were a small number of British and Canadian banks and insurance companies. Loans, a source of commercial and consumer credit, constituted the main link between the financial elements and the rest of the economy. The private financial institutions favored the tourist and construction industries to the detriment of other areas of the economy. Seeing this as unsatisfactory, the government established its own banks and insurance companies, including the Antigua and Barbuda Development Bank. Public institutions were a relatively insignificant part of the financial sector, however.

Antigua and Barbuda, as a member of the Organisation of Eastern Caribbean States (OECS--see Glossary), was a member of the Eastern Caribbean Central Bank. As such, it used the Eastern Caribbean dollar, which was created in July 1976 and pegged to the United States dollar at the rate of EC$2.70 equals US$1.00.

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