Mariano Browne
This week, England, an island nation state with a population size of approximately 60 million people, is facing what is acknowledged to be a profound political and economic challenge, Brexit, its biggest existential threat since the second world war. Of the four scenarios from the worst case “no deal” to the deal currently on offer, economic growth is expected to be negative, ranging from -9.7% to -2.5%. I n short, Brexit as currently configured is a lose-lose proposition.
What caused this? A desire for sovereignty, freedom from the uniformity of laws and interpretation of law by the European Court over domestic jurisprudence; limitation of the freedom of movement inherent in the European Union; freedom from the need to contribute to the budget of the European Union and freedom to negotiate international trade treaties or nostalgia for a Britain past. To summarise loosely; England first!
Except that on the eve of the decision to leave the EU, the realisation is that the cost of the divorce is expensive (all divorces are) and the economic downsides substantial. In an age of interdependence, sovereignty, even for 60 million people, has substantial cost implications.
Meanwhile, here in the Caribbean, Scotiabank, the largest bank in the region, has sold (or is seeking to sell) its banking operations in nine of the 21 Caribbean markets—Anguilla, Antigua, Dominica, Grenada, Guyana, St Kitts & Nevis, St Lucia, St Maarten, and St Vincent and the Grenadines—to Republic Financial Holdings Ltd. Scotiabank is also negotiating the sale of its insurance operations in Jamaica and T&T to Sagicor Financial Corp.
With the exception of Guyana, these nine countries are small island states and the population of each is less than 150,000 (660,000 in total). In other words, Scotiabank is taking a strategic decision to withdraw from the smaller countries, retaining its banking operations in Barbados, Dominican Republic, Haiti, Jamaica, and T&T.
Why withdraw? What made sense 100 years ago does not today; changes in the international world order are impacting the Caribbean negatively. There are two key considerations. The first is that these markets have little growth potential to justify a continuing presence. In addition, compliance with the burgeoning rules and procedures required to remain part of the international financial system increases the cost of doing business annually without a commensurate increase in the ability to charge customers for these costs. Put another way, there are no economies of scale to compensate the anticipated cost increases.
The second (probably the most important) issue is that the risk profile of these jurisdictions creates reputational risk issues that cannot be justified by the profits generated. Witness the comments from the T&T banking sector regarding the legislation to give effect to the sharing of tax information with OECD countries. This is part of the “de-risking” scenario resulting from the enforcement of the US-led anti-money laundering initiatives, in addition to the tax compliance issues.
US authorities are notorious for their prosecution of any breach, whether made wilfully or in error. Any errors here could negatively impact Scotiabank’s wider business activities. It is, therefore, better to be safe than sorry.
Small (island) states all struggle with the issue of economic viability. We have come a long way from the 1763 Treaty of Paris which ended the Seven Years War from which France retained Martinique and Guadeloupe in exchange for Canada! Nevis was then a viable colony with less than 10,000 people because sugar was still king. After sugar’s failure in the 1800s, colonial office policy was to twin islands states to reduce administrative costs. That’s why we have several twin island (sometimes multiple) states; Antigua and Barbuda; St Vincent and the Grenadines, St Kitts and Nevis, the Commonwealth of the Bahamas, Jamaica and Cayman (up to 1962), Trinidad and Tobago (1833-1885 Tobago was part of a regional grouping which also included Barbados, Grenada, St Vincent, and St Lucia. In 1889 the new colony of Trinidad and Tobago was created).
Size and survival became a theme of Colonial office policy as it was felt that small islands could not make it on their own. The “federation formula” was a natural extension of that idea and was used in Asia as well the West Indies; Malaysia and Singapore were also part of a federation arrangement that did not work out either.
The foregoing is to give the “context” to an article in the Express Newspaper dated December 6, 2018, penned by Dr Winford James. Dr James argues that gas in “Tobago waters” and the income derived therefrom should accrue to Tobago. This argument is not unique. The Shetland Islands (part of Scotland) claimed rights to the North Sea oil/ deposits in the waters off Scotland’s coast. Scotland which has always had a contentious relationship with England despite being part of England since 1603, also claims North Sea oil rights. The rallying cry "It's Scotland's Oil" helped the Scottish National Party to record its best-ever result in a Westminster General Election, in 1974.
There is Trinidad and Tobago; there are T&T waters, not Trinidad waters or Tobago waters. To suggest Tobago waters as Dr James does raises many issues; of sovereignty, sustainability, the suitability of governance arrangements for Tobago the economic development model and equality of treatment issues. I shall address these topics in my next article.