Introducing AE Group of Influencers

Happy New Year!

I’ve been looking forward to 2014 because I’m very excited to introduce a new way for you to interact with us. From this year we’ll be introducing the AE Group of Influencers.

Our vision for Antilles Economics has always been to be a responsive economics and strategy consulting firm. Responsiveness for us means addressing the pressing questions of our clients and followers. We all face knowledge gaps in our professional lives. I’m not referring to academic or skills training gaps, but rather information gaps.

Have you ever been conducting research for a project and found loads of information on every country/industry imaginable except yours? Or read an interesting article in an international magazine and wished a similar study was available for the Caribbean, or if the results were even applicable for the Caribbean? What about reading a paper with a promising title only to realise that it failed to capture some of the complexities of doing business in your market?

Obviously you could do the research yourself, if you have the necessary training, time and finances. Or you could tell us and we’ll do it for you.

So we came up with the AE Group of Influencers. Think of it as an elite group that drives the research agenda of our company. Remember that in addition to the projects that clients pay us to investigate, we also conduct research that may be of interest to organisations in a particular industry or country, or those dealing with a common problem. So you can tell us what you’d like us to investigate, and we’ll add it to our research agenda. It costs you nothing.

Just to be clear, when you join the AE Group of Influencers you are not subscribing to our blog. We decided to separate the function of sharing our thoughts on particular topics (AE Blog) from discussing our research plans and progress. The main reason is that we found that blog subscribers do not necessarily wish to drive research and those interested in our research agenda may not wish to receive all of our blog posts. But, you could apply to both and receive the best of both worlds.

How does it work?

To join AE Group of Influencers, you simply fill out and submit a form providing us with basic background information and your research preferences. That’s it. From time to time, you’ll receive emails from us on our research agenda, for example:

  • we may ask you for suggestions on topics/industries/countries to research
  • you’ll receive advance notice of upcoming publications, presentations, etc.
  • we may bounce ideas off of you while in the middle of research
  • we may ask for help if we come across a problem that we can’t solve on our own
  • we may ask you if you’d like us to present a topic as a blog, e-book, webinar or in-person presentation

Think of it as being the leader of our research team with all of the benefits,

  • access to the latest thinking on your areas of preference
  • ensuring that the studies you want to read are the ones we work on
  • access to research skills beyond those of your organisation
  • ability to prioritise research areas and publication dates
  • be part of a high-performing research team

but none of the stress, time or money that would normally be required. Plus, it’s confidential.

For us, we learn a bit more about our followers, we ensure that our research is responsive and we help deepen Caribbean business intelligence. Everyone wins.

To join, click on the following link and start 2014 by telling us what you want.

Become a member of the AE Group of Influencers

Interview: Electric Car Rentals

Introducing Electric Car Rentals

Electric Car Rental Primary LOGO(blue wheels)-01 copy

Today’s post interviews Kieshelle Mcknight-Cummins from Electric Car Rentals, a new car rental company in Barbados with an ambitious mission: to be the regional leader in green transportation by providing 100% eco-friendly vehicles for rent to tourists and residents.  The company only offers electric or hybrid vehicles with zero or ultra low carbon emissions.  This is a game changing move in a region that is embracing the ideas of a green economy and sustainable tourism.


Congratulations on the launch of Electric Car Rentals. Tell us a bit about your company and what gave you the idea to launch an electric car rental company.

The Electric Car Rentals dream was born while considering the amount of fossil fuels we consume as a small Island nation.  We spend approximately US$400M in fossil fuels each year.  This is a big and worrying number for an economy as small and open as ours.  Our natural response would probably be to say “that’s the Government’s problem…not ours”.  However, it’s a national problem that needs to be addressed by all of us.

Transportation is a big contributor to consumption and we thought that we should address this sector.  Electric Car Rentals seeks to make a dent in consumption by renting electric or extremely fuel efficient cars.


From the website it seems that you are aiming at tourists, can residents of Barbados also rent electric cars from you?

Absolutely!  Our cars are available for anyone who wants to experience something different.  They are not only fuel efficient and environmentally friendly, they are fun to drive!


I know it’s still early days, but how has it been received so far?

It has been a very interesting experience.  We anticipated some level of curiosity and maybe some scepticism.  However, our product has been greeted with great enthusiasm.  Watching some persons drive an electric car for the first time is like watching a kid at Christmas!  We hope this level of interest sparks a change in the way people think about the environment and what they can do to make a difference.


On electric cars

We’ve been hearing quite a bit about electric cars in recent years but I still find it a bit confusing. Do you plug in the cars? How does this work?

The two more recognisable types of electric cars are those powered by an external electrical power source (Plug-In) and those powered by an on-board electrical generator (Hybrid).  We are now beginning to see plug-in vehicles being more accepted by the market – The Nissan Leaf is a popular brand.  However, people are more familiar and accustomed to the Hybrid.

Toyota Prius C 2013

The Hybrid uses a combination of battery power and the conventional internal combustion engine to power the vehicle.  The vehicle alternates between electric power and engine power depending on your driving style or the terrain.  What’s fascinating about the Hybrid is that the combustion engine powers the battery, which means that you NEVER have to manually charge or plug-in the car.  Once driven the battery is charged automatically.  Hybrid Synergy Drive by Toyota takes it even further by capturing the energy from braking to also charge the battery.  Efficiency at its best!


What do you see as the advantage of renting electric cars compared to renting conventional cars?

The immediate benefit to people is the very noticeable savings on gas.  For the Plug-In, you don’t need gas at all and for the Hybrid you need very little of it!  With gas prices being as volatile as they are, it pays to drive an electric vehicle.

However, the longer term benefit is your impact on the environment.  For a tourism based economy, we depend heavily on the beauty of our environment to earn foreign exchange.  The moment our air quality deteriorates to the point where people have difficulty breathing, we will have a huge problem on our hands.  Electric cars offer zero or ultra low emissions.

In summary, you can help preserve the environment, save money, and drive a cool Prius all at the same time!


Are there any other differences that you believe people need to be prepared for when they first drive an electric car?

It’s extremely quiet.  You seriously need to remember that the car is turned on!


On a Green economy in Barbados

Electric cars could be seen as being aligned with the current government’s goal of creating a green economy in Barbados. What is your view on how a green economy operates and do you think that there are sufficient enabling conditions in place to foster its growth?

What has been done in the last year or so with the incentives on alternative energy has been very encouraging.  For decades, solar water heaters led the way, saving an estimated US$100M in foreign exchange in 2002.  We need to take that next step and we hope to also see incentives in place to make electric vehicles cheaper to import and more accessible to all.


I have always wondered if people only paid lip service to the concept of becoming more environmentally conscious, and at the time when a purchase has to be made, they will continue to choose their familiar, less environmentally conscious options. A good example would be in the area of organic produce. Informal discussions suggest that people support the idea of organic produce but are not willing to pay the required premium. How do you believe that obstacles such as this can be overcome to increase the demand for green products?

I believe people only see what’s in front of them.  Being environmentally conscious for many is some abstract concept that can be ignored when convenient.  However, if we are able to clearly articulate the immediate economic benefits, I believe we would be more successful in getting people on board.  There is definite and very real economic benefits to driving an electric car and people are quickly realizing it.  The Prius is expected to outsell the Corolla is some markets! That’s a big shift and an encouraging development.


Barbados has slipped in the 2014 Doing Business rankings. The main weaknesses are in the areas of registering property, protecting investors, paying taxes and enforcing contracts. Did you face any major stumbling blocks related to policies and procedures when trying to start Electric Car Rentals and are there any areas that you believe must be improved to encourage small businesses to enter the green economy?

We could definitely improve on the turnaround time for licenses.  Every day lost is a loss of possible foreign exchange earnings (and savings) and employment for our citizens.


Let’s switch gears now to the more practical elements of managing a young, innovative company in a mature sector.

The car rental market is a mature industry in Barbados. What do you believe would be your main sources of competitive advantage? 

It’s a cool car to drive!  It’s different and persons are beginning to recognize that these cars are now a very viable option.  People can make a statement about who they are and how they are making a difference just by driving a car.


Small business owners and entrepreneurs have constantly lamented that getting financing for their business is very difficult in Barbados. They argue that it is difficult to find investors/lenders willing to take on the risk and, when they do, the financial costs are ‘unreasonably’ high. Did you face any challenges raising the finances necessary to launch an unproven product and what advice would you have for other small businesses looking to raise money in the current climate?

I’ve been fortunate in that my business required Asset Financing.  This concept is something that our banking system understands very well.

However, I must note that it is also important to clearly articulate your value proposition and how you intend to pay them back.  This is the area I believe a lot of young entrepreneurs fail.  Not everyone will understand what you are trying to do right away.


What are the next steps for Electric Car Rentals?

To see one of every 10 rentals, being an eco–friendly rental.  Small steps…small steps


Thank you Kieshelle and we wish Electric Car Rentals every success.


Why not drive a rental car today! To find out how to reserve your car from Electric Car Rentals, you can visit their website at or call them at 1-246-243-8970.

If you’d like to pick Kieshelle’s brain even further, she can be contacted at  

Surviving the Recession: 5 Steps to Improve Business Decision-Making

I got the idea to write this post when I was writing the Recession and Falling Reserves 2013Q3 review for Barbados. I wondered if all of this doom and gloom about the economy was leading to worse business decision-making. So I did some research and I realised that within many companies marketing spend appears to be down, prices have gone up and projects have been scaled back. The response of corporate Barbados appears to be to cut costs and increase revenue quickly.

This type of reaction is not surprising. The economy is not doing well and companies are in full defensive mode. But does this make sense? Would this type of response actually help the company survive the recession? Would it position the company for extraordinary growth when the economy finally rebounds?

My short answer is no. I am not suggesting that companies go on a spending spree, or that they do not make some hard decisions. What I am suggesting is that they become more focused. So let’s put this in perspective so you can figure out how to not only survive this recession, but emerge a stronger, more competitive and more resilient company.

Improving Business Decision-Making During A Recession


1. Set your strategic goals for at least the next 3-5 years

Before you make any decisions on how your company will respond to the recession, you first need to be very clear on what your strategic goals are for at least the next 3-5 years. Try to be precise. No vague goals like ‘market leader’ or ‘well-respected’. Market leader should be drilled down to something like ‘Top 3 companies in sales of Product X’.

2. Assess the key factors contributing to achieving your goals

Once you are clear on your goals, you can now have a look at your revenue and cost structure with the aim of identifying what truly drives your company’s ability to achieve these goals. Let’s assume that you would like to lead the market in sales in your product category. You first need to understand what drives sales in your market. If it is customer service, then you may not be able to cut staff in this area. If it is product features, then you may have to continue developing that new product, even though it is expensive. If it is location, then you may have to consider pushing ahead with the new storefront.

The keys to accurately identifying these drivers are objectivity and data. By objectivity, I mean being prepared to put aside old assumptions about what it takes to be successful in your market in the search of the truth. The truth is what the data reveals. You may find that your intuitive understanding of your market and the data revelations match. But in the event that they don’t, go with the data. And be prepared to retrain your staff on how to think about their market.

But what if there is no data. First, there is always data. Most companies have accounting records, sales information, staff performance records and general economic information. Second, if the data that you want truly does not exist in your company, create it. You can carry out a survey of your customers, conduct a competitor review or identify what macroeconomic indicators appear to impact your performance.

With the data in hand, you can now test your assumptions mathematically using econometric techniques and/or game theory. Maybe you can do this in-house, but odds are at least part of this research will require the skills of external specialists (see our Market Intelligence and Research and Retainer Services for more information on how Antilles Economics can help you improve your market data).

3. Armed with an understanding of your drivers, you now know what cannot be sacrificed and what can

Armed with your insights on what truly drives your success, you can start considering what changes may be required to support your goals. The first priority is to focus on those areas that cannot be sacrificed: your drivers. This gives you clear guidance on where you must be competitive and what cannot be cut when considering where to trim expenses. For example, at a minimum my company will provide the greatest range of products in category X because customers in my market consider product selection to be the single-most important factor driving their decision to do business with my company.

Any expense or revenue earner outside of your key drivers is fair game once there is no legal reason you have to maintain it. For example, as a banker, you may not be able to lower your deposit interest expense because the Central Bank of Barbados sets a minimum savings rate. On the other hand, you may be able to raise fees, because not only is there no regulation that determines your fees, but it is also not a driver of loan sales.

4. You should focus your efforts on adding additional value to your drivers

The second step is to determine what improvements can be made to add additional value to those drivers. Even in markets with declining demand, there will be customers still seeking your products and services. The aim of this step is to remain top of mind for these customers and capture a larger share of the market. For example, providing an online catalogue of products in Category X or providing an in-store expert on Category X products. These ‘value adders’ should be ranked based on return on investment. This area may also point to an avenue where you can increase revenue. Since customers prioritise this driver, they may be willing to pay extra to receive additional value.

5. Start development on the areas that will support extraordinary growth when the country exits the recession 

Your analysis in Step 2 may reveal upcoming drivers in your market. These are areas that, while not critical to the sale today, are becoming increasingly important. Examples could include more convenient opening hours, ability to purchase online, product samples, emerging attractive segments of the market, certain geographical locations, etc. An analysis of these features should provide you with an indication of what could be in research and development in your organisation during the downturn.

Starting development in these areas may not require incurring significant additional costs. You could restructure the organisation to better align it with your new direction. You could rewrite the copy for your marketing material to focus it on your new target market. You could touch base with a realtor to start looking for the location of your new store. The key to this step is putting things in place to allow you to respond and grow quickly when demand returns.

Surviving a recession requires greater precision in our decision-making than operating during a period of economic growth. But it is not impossible and recessions do not have to signal the demise of your company if you get more focused when making decisions.

Nowcasting with Google, by Mahalia Jackman

Nowcasting has become widely popular in economics. In its most basic form, nowcasting can be summarised as ‘predicting the present and sometimes recent past’. At first this may seem a bit strange. Why would economists want to forecast the present, or even the past? Can you even forecast the past?  Economists ‘nowcast’ because of the significant time lag in statistical releases. For instance, inflation statistics for July 2013 were released in October 2013; and don’t even get me started on the national accounts data. We often want to know what is going on in the economy in real time. For example, we want to know what happened in the tourism industry in May on June 1st. So economists began looking for high frequency indicators which tend to be highly correlated with the ‘late release’ data. The problem is, even the leading indicators have a lag…until Google!

Putting Google Data to Work

Recently, Google began to release real-time information on its users’ search queries though its Google Trends interface. The data is of a weekly frequency and dates back to 2004. You can filter the results for the search term by country (i.e. the location where the search was generated), time period and category (for instance, searches in the Google Travel category or Google Finance). This has proven to be a useful data source as it allows researchers to observe interest in a product, brand or society in general. In fact, in a recent paper by Google economists Hyunyoung Choi and Hal Varian titled “Predicting the present with Google trends” illustrated the usefulness of Google data for nowcasting a host of US economic time series, including automobile sales, unemployment claims and even trends in travel.  Since then, several other researchers have explored the use of Google search data as an economic indicator. Google trends has been used to nowcast growth cycles in Israel, private consumption in the US, some indicators of labour and housing markets in the UK, unemployment in Turkey, retail and unemployment in Belgium, automobiles in Chile, and the list goes on.

Applying Google Econometrics to the Caribbean

After reading several studies on the larger economies, I started to think about the applicability in Caribbean.  So I – with the aid of Simon Naitram – put Google econometrics to the test. We focused on whether or not observing internet habits in Barbados main tourism markets can provide insights on trends in tourist arrivals to Barbados[i].

Why tourism? First, Barbados’ economic fortunes are closely tied to its tourism industry and as recent economic activity highlights, if tourism sneezes, the entire country catches pneumonia! Second, tourism is often described as an information intensive industry. Quite a few studies have shown that the internet (particularly search engines) has become one of the most effective means for tourists to seek information on destinations or discounts on hotels and flights. We assumed that Google search queries may be capable of providing information on the level of interest in Barbados, and so serve as a leading indicator of tourism demand.

The Results

So…how predictable is tourism using this algorithm?  Here is one of the examples from the paper. The blue line shows weekly Canadian arrivals and the red dotted line represents Canadian search volume histories related to the simple search term “Barbados” under the Travel category of Google Trends. Even through a simple visual examination there does seem to be a high degree of correlation, and the Google trends series even mirrors the seasonality in Canadian arrivals.

Canada - Mahalia upload

However, just because they are correlated does not mean that Google can ‘nowcast’ tourism. Forecasting 101 tells us that performance is relative: the predictive power of a model is only meaningful in relation to some baseline means of prediction.   So, we proceeded to nowcast Canadian arrivals based on its past values (this is a simplification of the process- to be specific, we used an autoregressive support vector regression that you can read more about in our paper). We then compared them with a model incorporating the Google data (which we deemed the Google-based support vector regression). In a nutshell, if the model with Google provides better predictions, then we can conclude that Google search query volumes add insight on tourism behaviour.

The figure below plots the two nowcasts as well as the actual data over a 12-week period. The red line shows the nowcast of arrivals from Canada with Google, the blue line shows the nowcasts without Google and the grey bars represent the actual data.

nowcasts - Mahalia upload

A key finding from the paper was that the accuracy of Google predictability varies. For some tourist markets (like Canada) Google trends worked very well, while for others (like the US), Google data did not provide any additional information from what can be “learned” from past behaviour.

Google Data Pros and Cons

It should be noted that Google data is a mixed blessing. On the positive side, Google trends data have a large number of characteristics that are appealing; for instance, they contain information on a large portion of internet users, the information is free and it is practically available in real time.  On the other hand, it has a number of shortcomings:

  • Google trends uses relative data rather than absolute. That is, it doesn’t give the total number of searches, but an index which is relative to all search queries in a particular region.
  • Different users interested in the same topic could enter entirely different search queries & different users with entirely different intentions could enter very similar search queries  (though this is not likely to impact what Simon and I did, as we limited the results to only searches in the ‘Travel’ category)
  • Internet searches are correlated with factors such as age, income, etc., which may limit predictability in certain market types
  • Currently, Google can only generate search queries originating from four Caribbean countries – the Dominican Republic, Haiti, Jamaica and Trinidad.

What can we take from this?

  1. Google Econometrics has the potential to act as a leading indicator
  2. Predictability depends – so be sure to test the nowcasts against some benchmark model
  3. Beware of the short-comings and use wisely!


Mahalia Jackman is Head of Model Development at Antilles Economics. She can be contacted at or via her linkedin page.

[i] Jackman, M. and Naitram, S. “Nowcasting tourist arrivals to Barbados – Just Google it!” Paper presented at the Central Bank of Barbados Annual Review Seminar, July 2013.

Barbados Economic Recovery: Framing the Discussion

Last week on a popular radio show in Barbados, two leading economists and a former head of a large company in Barbados discussed and took calls from the public on the Barbados economic recovery. I found the discussion extremely interesting and I commend all of the panelists for their insights. At the same time, however, I found myself wondering if the discussion was framed correctly.

Be careful what questions you ask, you may just get answers

I believe that you only get answers to the questions you ask. So, for example, if I asked you if you thought that an umbrella would help reduce the heat from the sun, we could have a long discussion on the usefulness of umbrellas, their design, the materials they are made out of, when they are most effective, etc. We may not discuss if the temperature was actually high enough that day to warrant a solution in the first place. We may not discuss if there were other solutions to reducing the impact of the sun’s heat. We may not discuss the benefits of exposing oneself to the sun’s rays. We would focus our discussion on answering the question asked: would an umbrella work.

So, when we ask panelists whether Barbados is in a crisis, they respond with their opinions on what defines a crisis and therefore whether they believe we are in one. When we ask them if the government or the private sector should be the one to get us out, they debate the effectiveness of each option as a means to solving the current problems. When we ask them for specific examples of what we should do to get out of the current crisis, they list suggestions from strengthening tourism, cutting government expenditure, and retraining the labour force.

These are all valid points. Very few people would have any major disagreements. Furthermore, all of their suggestions could work. Unfortunately, this leaves us with no clear idea of what to do next and what I consider to be the ‘too much choice’ dilemma: when faced with too many options we opt to choose none.

We need to frame our discussion around solving our long-term or structural problems first before we can identify the best short-term actions. Policy decisions, probably more than most other types of decision-making, is about long-term planning because timing is the most critical factor in macroeconomic policy. The ‘right’ policy implemented at the wrong time will not work just like the ‘wrong’ policy implemented at the right time will not work. The only combination that works is the ‘right’ policy at the right time.

We created our structural problems by answering the wrong questions before. When government needed more revenue, it added the Value Added Tax (VAT), which did not address the underlying problem of insufficient production in the economy. When the VAT was raised, it did not address the underlying problem of declining production and consumption. When unions demanded pay increases, it did not address the challenge of falling corporate revenue and labour productivity. When companies cut marketing budgets and raised prices, they ignored the fact that consumer demand was falling. All of these solutions were aimed at fixing some short-term challenge. But in the end, they deepened structural weaknesses and contributed to yet another round of problems.

Solving our structural challenges requires us to ask the right questions. What if instead we had asked the panelists for their view of the ‘ideal’ economy of Barbados before we asked any other question? Maybe they would say that it was less dependent on tourism; the government was smaller; the labour force was more flexible; the exports were more diversified; the infrastructure and institutions were stronger; or some other goal or combination of goals. Whatever the goal, we can then debate how we achieve it.

All other questions, and their answers, should be framed with our long-term goals in mind. Suppose we determine that a smaller government was critical to our vision of the ‘ideal’ Barbados economy. Maybe we would be much more supportive of cutting the size of the civil service, embracing technology for standardised government services and divesting of government-owned companies.

The same thinking applies to becoming less dependent on tourism, for example. With this as our goal, maybe we would be hesitant to grant additional subsidies and more financial resources to the hoteliers. Maybe we would revisit our legislation for our international financial services sector to encourage growth in this industry. Maybe we would embrace science and technology more in our agricultural sector to compensate for the physical challenges the industry faces.

As highlighted with these two very different goals, the solutions presented not only shift the economy closer to becoming our ‘ideal’ economy, but they could also help solve the current problems. By having the goal in mind, we also have removed some options from the discussion because they do not help us to achieve our goal.

I believe that asking the right questions is key to solving Barbados’ structural problems so let’s start the discussion. What is your vision for the ‘ideal’ economy of Barbados?


What level of international reserves is enough?

Over the last few months we have all listened to the robust debate between our politicians and other interested observers regarding whether Barbados is holding an adequate level of foreign exchange reserves. While the debate has been useful, there is an implicit assumption that the international benchmark of an adequate level of international reserves is a good indicator. That may not be the case.


Why do we care about the reserves?

Before we can debate the benchmark, we need to understand why we even care about the level of the reserves. A simple way to think of the reserves is as a backup foreign currency savings account. Consider this simple example:

  • Barbados receives money from selling its goods and services to other countries or when other countries invest in Barbados (foreign exchange inflows);
  • Barbados has to spend money on goods and services it purchases from other countries or when it invests in other countries (foreign exchange outflows);
  • If it spends more than it earns, it needs to make up the difference with savings (reserves).
  • If you run out of savings, how will you pay your foreign currency bills?

In fixed exchange rate economies like Barbados, international reserves allow the central bank to make the implicit guarantee that it will be able to convert local currency to foreign currency on demand.  Think about what would happen if the Central Bank of Barbados could no longer fulfil its promise to exchange two Barbados dollars for one United States dollar.  This would mean that in order to purchase materials from abroad, you would have to obtain foreign exchange from a foreign exchange dealer and pay whatever price the dealer demands for foreign currency.  In these circumstances, the market exchange rate would deviate from the pegged rate – i.e. the market exchange rate would no longer be 2:1 – forcing the authorities to abandon the peg. When you consider that we import almost all of what we consume, instability in the foreign exchange market would have wide-reaching consequences.

It is therefore not difficult to understand why so much emphasis is placed the international reserves in fixed exchange rate economies.  It indicates to investors (both local and foreign) whether the peg is sustainable, and therefore the risk of exchange rate-related losses if they were to invest in the country.


 Why it is important to have the right benchmark level?

I like to think of the current reserves debate as similar to steering a ship while tracking the development of a hurricane. We rely on our meteorologists to keep a close eye on every patch of cloud in the sky and watch how it develops. We expect to get warnings long before a harmless cloud becomes a hurricane. We expect to be told how quickly it was developing and when and where to expect it to hit. We may not fully understand how they do it, but we assume meteorologists have thresholds that they compare developing storms to.

But what if their thresholds are wrong? Or, what if their thresholds only signalled an approaching hurricane when we were already in the midst of it? There is nothing wrong with having thresholds. The challenge is obviously if the thresholds are adequate and give us enough time to prepare. That is the concern I have about the internationally accepted benchmark of an adequate level of reserves. I think we all accept that the country’s external position is at a very vulnerable point, but is it too late now to do anything about it?

The current benchmarks

So what level of reserves is needed to maintain the peg and support investor confidence? Economists have two popular indicative rules of thumb.  One of the most quoted in local debates is 3 month or 12 weeks rule: reserves should be able to cover 12 weeks or 3 months of projected imports.  It is important to know that there is no statistical justification for this ratio; it is just a figure that has become a focal point for economists.  It is also subject to criticism as it ignores financial flows and focuses solely on the flow of goods and services. In a country like Barbados, this is an important failing, because while we import more goods and services than we export, we have historically attracted more capital than we have been sending abroad.

Another widely used indicator is the ratio of reserves to broad money (or the amount of printed currency as well as checking and savings deposits in a country). Consider the basic commercial banking model. Banks accept deposits from people that have surplus funds and then lend these funds to people that are in deficit and need to finance their activities.  Banks therefore never have all of the deposits that they have collected in their vaults. The model works, since only a fraction of depositors would demand access to their funds on any given day.  The same thing applies with reserves. If you think of the amount of money in a country as the deposits, only a fraction of these ‘depositors’ or holders of local currency would want to convert their local currency into foreign currency on any given day.  The benchmark considered adequate in this instance is that reserves should be around 20 percent of broad money, i.e. only 20 percent of the money supply would need to be converted into foreign currency in the short- to medium-term, whether it is for goods purchases or investment purposes.

 An alternative benchmark level

While I think that these two ratios are useful, I disagree with the benchmark levels that have been treated as sacrosanct in local debates because they ignore the many other factors that need to be considered when determining the benchmark in the first place. It’s similar to if we are only informed of an approaching hurricane when rain has already started to fall and winds are already creating 20-foot waves. Our international reserves benchmarks are far too low to be meaningful as a signal of distress.

Now let’s go back to the question we raised in the beginning: are the level of reserves Barbados currently holds adequate?

Looking at the benchmark indicators, you could conclude that the level of reserves appears to be adequate.  The reserves currently cover 13.3 weeks of imports of goods and services and at March 2013 were 22% of broad money. In both cases the country is above the benchmark levels so we should be in the clear. However, the story is a bit more complicated.

Consider these three facts:

  1. Small states are more vulnerable to natural disasters and therefor require larger amounts of foreign currency to finance recovery efforts;
  2. Foreign currency flows quite freely in and out of the country and we have limited ways to control it;
  3. We have a very large public sector that drives a large proportion of the country’s foreign currency consumption.


This would imply that we would need to have a larger cushion than countries that do not have these characteristics. We have derived an ideal target of 22 weeks for the ratio of reserves to imports (see the recent paper where we determined the optimal level of reserves based on a statistical cost benefit analysis for more information)[1]. This is almost twice the rule-of-thumb of 12 weeks and is a direct result of the high probability of natural disasters in small states.

Even this target, however, should not be viewed as sacrosanct. We found that small states that were able to implement a prudent government expenditure management framework would be able to hold a smaller stock of reserves, without leading to a disruption of normal import and export activities or any negative impact on short- to medium-term growth. Though the latest Central Bank of Barbados press release showed declining expenditure levels, the fiscal deficit was still estimated at a relatively high 8% for the 2012/13 fiscal year.

In short, it is important that we monitor the level of international reserves in countries such as Barbados. It is equally important that we independently determine what level is the minimum that we need to comfortably meet our obligations.


[1] Moore, W. and Glean, A. (2013), Optimal Foreign Exchange Reserve Holdings in Small-Island Developing States, presented at the Central Bank of Barbados’ Annual Economic Review, Bridgetown.

Recession and Falling Reserves: 2013Q3 Review


The Central Bank of Barbados (CBB) released their review of the economic performance of Barbados for the first nine months of 2013. As expected, the country slid deeper into recession and the CBB estimates that economic activity declined by 0.7% so far for the year. The key drivers of economic activity – tourism and construction activity – continued to struggle, the unemployment rate remains high and the level of reserves continued to plummet. The only good sign is the continued ease in inflation, though one could argue that the low inflation rate (2.1% at July 2013) may partially reflect low demand, especially in an import-dependent country, such as Barbados, where high levels of consumer confidence are often accompanied by a rising inflation rate.

Confidence and the Foreign Exchange Reserves

Perhaps the most worrying trend is the continued leakage in the foreign exchange reserves, which fell by Bds$220.2 million in the third quarter of 2013 and is now at its lowest since 2000. To be prudent, countries with fixed exchange rates are encouraged to maintain foreign exchange reserves equivalent to at least 12 weeks of imports of goods and services. This level is believed to provide sufficient foreign exchange coverage to successfully defend the exchange rate and thus provides a signal to international investors of the strength of the Balance of Payments position and, by extension, the entire economy. At 13.3 weeks, Barbados is only 1.3 weeks above this international benchmark. Unlike the last period of significant drain on the reserves, the reduction in the reserves is not due to a fast-growing import bill. In fact, retained imports have grown by a mere 0.05% so far for the year since domestic demand is quite weak.

The main obstacle to arresting the slide in the reserves has been attracting capital inflows. The CBB estimates that net capital inflows at the end of the third quarter are roughly one-quarter of what was recorded by the same point in time in 2012. Capital inflows, especially foreign direct investment, are good indicators of the level of confidence in an economy. In times where confidence is high, inward investment grows, as both domestic and foreign investors are comfortable making the long-term investments that attract capital inflows, such as major construction projects, buying real estate and starting/expanding companies. On the flip side, when confidence is low, not only do foreign investors become increasingly reluctant to make long-term commitments, but domestic investors also go into a holding pattern, since low confidence in the future of the economy increases the risk of these types of investments.

The CBB believes that 2014 should be better year for foreign direct investment due to the construction of a cruise pier and the implementation of government infrastructure and tourism-related projects. Furthermore, it anticipates that capital inflows will strengthen even further in 2015. This outlook hinges on major projects coming fully on stream and the success of initiatives to strengthen Barbados’ international competitiveness.

There are clear downside risks to this outlook. Private-sector projects have been subject to above-average financing constraints in recent years, partially due to the uncertainty surrounding long-term investing in Barbados. The government is also in the middle of a major fiscal contraction, which could prevent or significant slow the implementation of major infrastructural projects. There are signs that confidence may returning, however, with the major commitment recently made by Sandals Resorts International and the addition of another Jet Blue flight to Barbados.

Operating with Economic Uncertainty

Operating with this level of economic uncertainty is a major challenge for businesses operating in Barbados and presents a catch twenty-two situation for the country. Without investment and confidence in the future of the country, it would be difficult for the economy to rise out of recession. On the flip side, it is risky to invest in a country that has been in recession for a prolonged period of time, especially when the economic outlook is somewhat unclear. Nevertheless, we may be at a turning point in the country’s history where the timing may be right for the private sector to firmly take the reigns of the economy and lead Barbados to sustainable growth.

Caribbean Economics, More Than National Policy

As an economist I’m often faced with many misconceptions about the profession and the scope of work that economists do. Everyone expects all economists to be following GDP, inflation, monetary policy and fiscal policy. We’re supposed to be experts on national debt and trade policies. And, we’re supposed to be very critical of policymakers, unless of course we are the policymakers. Notice that I haven’t mentioned anything to do with the corporate world. It’s as if everyone simply ignores the fact that all economists – and all social scientists for that matter – must study both macroeconomics and microeconomics. Somehow in the Caribbean we’ve reached a point where economists have been pigeonholed into only one subsection of the vast field that is economics.

Do we do that to accountants? I don’t think so. We don’t think twice about the large accounting firms publishing fiscal budget reviews, even though that really is a job for economists. They also offer management consultancy, even though we have thousands of persons that are specifically trained in that area. They even branch into law. There’s nothing wrong with what they’re doing. In fact, I applaud them. As a profession, accountants have realised that they have transferable skills and they are broadening their scope. Good for them.

So why are economists expected to stick to macroeconomics and development policy? Why are our only career opportunities either in some form of macroeconomic or development policy or academia? I believe that there are a number of reasons for the narrow scope of our field.

The independent economies of the Caribbean are young. At our birth in the 1960s we needed macroeconomists more than any other kind. We were now starting central banks and running our own governments and we needed economists versed in these areas. As students, most of the Caribbean economists of note are macroeconomists, so naturally we start to believe that to make it in this profession, you should focus on macroeconomics. Fast forward 50 years and I think we’re still stuck here. The current environment reinforces this focus because the Caribbean economies are struggling and the onus is on macroeconomists to solve the problems. But there are only so many positions in macroeconomics and not all economists are passionate about this area of economics.

Another challenge is that other professions do not understand economics enough to recognise how someone trained in the field could add value to a private company. It’s easy to recognise when you need an accountant or a lawyer. Those fields have rules that only accountants or lawyers can navigate. But most people can read a central bank press release so they believe that they understand the implications for their companies or the country at large. Whether they do or they don’t is irrelevant. It’s their belief that they do that limits the opportunities for economists.

Most social scientists have been exposed to Introduction to Microeconomics/Macroeconomics but outside of social science, we do not expose our students to the formal study of economics. As these non-economists start companies or rise in companies, their lack of exposure and understanding hinders their ability to recognise when they need an economist for strategic purposes. Game theory, war games and competition policy are not introduced in first-year introductory courses. Yet, they play a pivotal role in guiding strategic decisions in corporations. In fact, in large companies all over the world, they anchor strategic decision-making. Economists in these companies may be called Strategy Directors or Division Managers, or they may sit on the legal, marketing or finance teams. What they bring to the table is their unique way of looking at choice.

And what about statistics and business analytics? Is there any other field in Caribbean social science more suited to researching, interpreting and analysing vast volumes of quantitative and qualitative data of any kind than economics? Yet we ask our creative teams to analyse market trends. We ask our accountants to forecast revenue. We ask our lawyers to fight our battles on competition policy. And we ask all of these people to do all this work without the support of someone trained in these areas, and we crucify them when they get it wrong.

I believe it is time to re-educate our people on the value of economics and it is beyond time we already in the field push the boundaries that have enclosed our profession.


Interview with Jeremy Stephen, New President of the Barbados Economics Society

Jeremy Stephen, President of the Barbados Economics Society

Jeremy Stephen, President of the Barbados Economics Society

At 29 years old, Jeremy Stephen is perhaps the youngest President of the Barbados Economics Society since it was formed in 1983. That does not mean, however, that he lacks experience. Jeremy is a frequent guest speaker on the popular morning talk show, Good Morning Barbados; owns his own consulting firm; has worked as an advisor with the Barbados Entrepreneurs’ Venture Capital Fund; is on the board of a number of Barbadian organisations, including the Barbados Agricultural and Development Marketing Company (BADMC); and, is a part-time lecturer at the University of the West Indies, Cave Hill Campus.

He took a few minutes out of his hectic schedule to share his thoughts on the future of the BES, the Barbados economy and the role of economists.


On the Barbados Economics Society

Thank you for agreeing to chat with us, and congratulations on your successful bid to be the new President of the Barbados Economics Society (BES). Tell us more about the role of the BES.

Our motto is “to Educate, Inform and Build”. We see ourselves as a society whose mandate is to ensure that:

  • the pubic at large is educated about basic economic issues and how they impact on their personal and professional lives
  • they are also informed about economic activity in a non-partisan and professional manner
  • we work along with prominent public and private stakeholders in building coherent policies. On this point we wish to ensure that proposals are sound and represent the best interests of the public

What do you hope to achieve in your presidency?

I see my role in a slightly different light from my predecessors. Whereas they were chiefly responsible for public relations and driving the research produced by the society, I have chosen to include those responsibilities as part of my agenda, but not necessarily spearhead them. I wish to introduce a new structure and methodology behind getting things done. We will resume the economists’ survey and have put measures in place to have that in place very soon. In my mind, our organisation has enough social capital and influence where it should be structured similar to ICAB (Institute of Chartered Accountants of Barbados) for example. They have a major advantage over us in numbers. Therefore, we will be continuing to focus on increasing membership within and throughout different professional disciplines. We have come up with the right benefits to encourage such.


On the economics profession in Barbados

Since the global financial crisis, the economics profession has taken a beating internationally, with many critics questioning the role economists played in the lead up to the crisis. Here in Barbados, do you think that the profession has lost some of its respect?

The local profession has been called into question. There’s enough of a media trail to show. Ironically, this profession is also being held responsible for driving us out of the economic slump. We are being asked constantly to bring new ideas to the table. So, inasmuch as the local profession has lost some of its respect in the public’s eye, we still have a major opportunity to prove our value.

I believe that there is a general acceptance of the need for economists in macroeconomic decision-making, but it is less clear whether corporate Barbados also sees a need for economists. Do you think that the BES and economists in general currently play a pivotal role in corporate decision-making in Barbados?

Yes, we sure do. You only have to look at how larger organisations operate when there is a competitive environment versus a more monopolistic/oligopolistic environment. I personally find that when such organisations become price-takers as opposed to their original price-maker role, they have a more difficult time understanding the dynamics of the marketplace and the macroeconomy. The market, as it stands now, is one where customers of such companies are deferring many decisions that they previously made without much hesitation. Most of our larger local corporations, as a result, are finding it difficult to deal with this new customer activity and they no longer are sure how to get customers to spend or where new customers are, for that matter. In my view, this is the perfect timing and opportunity for economists to prove their worth to said organisations.

What value do you think economists could offer corporate decision-makers?

The list is long, but, we as economists can analyse and interpret how the economy will affect their corporate strategy, no matter the duration of their horizon. We are, after all, the best trained to use quantitative techniques – econometrics, for example – that makes sense of all the noise produced by an economy on a monthly basis. Also, if the client is a large corporate body, I am sure that an economist could best assist in the creation of strategy. Here, the large client does have the potential to significantly impact economic activity based on its chosen strategy. An economist should surely provide informed impact analysis along with the long-term repercussions on the company’s customer base, if that is the wider society.

Do you think the economics profession in Barbados needs to evolve? If so, how?

We all have been told and taught about the different fields of economics, such as Transport Economics and Industrial Economics. I wish for the profession here in Barbados to embark down a road where there’s just not more pertinent research in these areas, but active practitioners. At that point, I think we, as economists, will be leading Barbados in the right direction.

I also wish for economists to see ourselves as more than public servants and academics. We can be entrepreneurs and pretty strong strategy and economics advisers to the private sector.


On the Barbados economy

We all recognise that the Barbados economy is in a slump. Our own work here at Antilles Economics suggests that it may be another 2-3 years before the country resumes growth above 2%. What is your view on the future trajectory of the economy?

We believe that the economy will take some years to resume positive growth, but that depends very heavily on recovery in our source tourist markets. These are expected to recover in line with your analysis. In the meantime, we would wish to encourage the private sector to continue exploring new markets where growth could bring about a faster, balanced and more sustainable recovery.

What is your view of the recent budget presented by the Minister of Finance? Will it put the fiscal accounts on the right track? And, what do you believe will be the impact on the economy?

We believe that the budget can achieve its intended purpose, which was to bring the fiscal deficit under some measure of control. Considering the size of the deficit, we do understand why the government saw it necessary to make those rapid changes. We expect that government’s finances should fall in line with expectations in the medium term. But the problem can persist if the larger issue at hand is not dealt with, and that has to do with the recovery in economic activity as a whole. The measures proposed in the budget will temporarily dampen activity once the timing of government’s expenditure cuts come just before the anticipated recovery in some of our source markets. The slowdown can be protracted, however, if government gets the timing wrong.

There have been a number of calls for the private sector to play a greater role in driving the growth and evolution of the Barbados economy. Do you think that the country is well positioned for private sector-led growth?

We believe that private sector-led growth is the only way out of this slump, and the drive towards encouraging entrepreneurship in Barbados is a step in the right direction. We have heard some major successes in the small business sector. There are persons who have found new export and services markets. Moreover, there are new industries, once thought to be either impossible to access within a small island state, that are slowly becoming convention. Access to technology has provided the means through which we are able to explore these avenues. So, to answer your question more specifically, we currently might not have the systems in place for explosive private sector-led growth, but the evidence is showing that we are heading towards that.

What advice would you like to leave with companies on decision-making in the current economic environment?

I would encourage them to engage economic specialists where applicable and the BES is always willing to assist.


Thank you Jeremy and all the best as the new BES President.

You can find Jeremy on Linkedin.

To learn more about the BES, click here to follow their blog.

Welcome to Antilles Economics!

Have you ever had to read a Minister of Finance budget speech? Was it really confusing? Were you left wondering … what exactly does this mean? You weren’t alone. And if you feel bad because you have a job that you’re supposed to know these things, don’t worry, you’re still not alone. Understanding fiscal budgets can be very challenging and interpreting their impact on an organisation’s bottom line can be even more daunting. That’s just one example of the type of challenges that Antilles Economics was created to solve.

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