Caribbean Agrifood Business Session n°15

How trade infrastructure can boost Caribbean entrepreneurship: Challenges and opportunities

Trade is essential for Caribbean countries development in terms of growth, employment creation and poverty reduction. The development of trade infrastructure is crucial to unlocking this potential. In many Caribbean countries, trade (exports and imports) accounts for a substantial portion of (GDP). For example, in 2022, trade represented over 80% of GDP in countries like Belize and Guyana.

Tourism is a major economic driver, contributing significantly to GDP and employment. In some countries, tourism accounts for more than 50% of GDP.

Several Caribbean nations rely heavily on the export of commodities. The region imports a wide range of goods, including food, machinery, and manufactured products. This dependency makes the Caribbean vulnerable to global supply chain disruptions. The United States, the European Union, and China are major trading partners for the Caribbean. The region’s trade with these partners includes a mix of raw materials, manufactured goods, and services.

Main determinants of trade performance include: (i) the location and proximity to major markets; (ii) the effects of climate change effects and natural disasters on trade infrastructure; (iii) the export composition based on tourism, agriculture, and minerals; (iv) the small domestic markets and the need for economies of scale; (v) the institutional and policy factors (trade policies, agreements); a regulatory environment that is conducive to business growth; (vi) the quality and efficiency of infrastructure and logistics; (v) the role of technology in improving trade logistics and reducing costs; (vi) the human capital and innovation affecting trade competitiveness.

Despite progress in decreasing trade barriers, Latin America and the Caribbean (LAC) degree of trade integration remains low, especially within the region. Intraregional trade is between 40% (for goods) and 50% (for services) lower than in regions with similar economic and geographic characteristics. Obstacles derived from poor infrastructure, and inadequate governance, among other deficiencies, have played an important role in limiting trade within and outside the region. Closing half of the existing infrastructure gap between the region and advanced economies would lift exports by 30 %.

Despite progress in lowering trade barriers over the last three decades, LAC continues to trade considerably less than other countries with similar economic and geographic characteristics. The region’s trade underperformance is particularly evident at the intra-regional level and in the manufacturing sector. This is partly explained by low levels of infrastructure, although poor governance and human capital are also behind the observed under-trading.

Improvements in cross-border infrastructure, both physical and digital, can deepen and strengthen regional integration and boost trade and investment flows while reducing operating costs for enterprises.

In addition to streamlining trade procedures and formalities, the countries of the region need to progressively deal with the infrastructure gaps that have been highlighted by various international indicators and that limit their development prospects. This means not only increasing the regional infrastructure stock, but also allocating adequate resources to the maintenance and repair of existing infrastructure, improving technical and regulatory frameworks and preparing for the challenges of climate change and the extreme events accompanying it. However, increasing the amounts allocated to infrastructure investment is a major challenge given the context of fiscal stringency facing most countries in the region. Different innovative financing options therefore need to be explored, particularly those associated with the development of green infrastructure.  Enhancing trade infrastructure is vital for boosting entrepreneurship in the Caribbean. While there are significant challenges, the opportunities for growth and development are substantial. By addressing these challenges through regional collaboration, PPP, technological advancements the Caribbean can create a thriving entrepreneurial ecosystem that drives economic growth and improves the quality of life for its people. Easing supply side constraints through innovation enhancement, and improvement to key services (electricity, transport and telecommunications) would have a major impact on the productivity of Caribbean firms. Investments are needed in digitalization in trade processes which can streamline logistics, reduce costs, and improve the overall efficiency of trade operations, thereby supporting entrepreneurial activities.