by Kari Grenade, PhD, Caribbean Economist and Macroeconomic Advisor
You are probably reading this article on one of your many electronic devices, which were not produced in the Caribbean, but were imported.
Your entire attire, from what is on your head (wig or weave for example) to the shoes on your feet was also imported. The building you are in while you read this is built with construction material that was not produced in your home country but was imported. The vehicle that you used to get you to the place that you are in while you read this article was imported also. The food that you eat daily, more than likely, was imported, or produced from imported inputs. You get the point; imports are indispensable to our way of life in the Caribbean.
Limited import substitution is possible in Caribbean countries with small open economies. Look around you right now and choose any one item and think about substitutes that can be produced locally on a sustained basis in large quantities at an affordable price. You may find just one or 2 such items. Countries like those in the Caribbean are not endowed with what they need to be self-sufficient in many areas, hence their heavy dependence on international trade. Buying and selling goods and services regionally and internationally are the means through which Caribbean countries with limited natural endowments maintain the living standards of citizens. Imagine your life without imported medicine, clothes, vehicles, food, fuel, construction materials, or electronic devices for example.
The issue is not so much about importing less per se, but it is more about generating income through exports of sophisticated goods and services to pay for imports to maintain living standards. By sophisticated I mean value addition — both of goods and services. Exporting goods in their raw form or services that are not unique and set apart from others will only constrain the income-generating capacities of Caribbean countries. Governments do not export, firms do. Firms are the ones that generate foreign exchange, as such, they must be enabled and supported by governments to expand, innovate, and enhance their sophistication. Economic growth and macroeconomic stability of small Caribbean countries require, of necessity, that the generation of foreign exchange from exports of goods and services exceed the foreign exchange that is used to pay for the goods and services that cannot be feasibly and sustainably produced locally.
What about the region’s food and fuel imports, you ask? Shouldn’t we be growing more of what we eat and utilising more of our natural energy endowments? The answer is yes. Regarding food imports, governments of the region certainly have control over the volumes and quality imported. Based on the Communique’ of the 46th Regular Meeting of the Conference of Caricom Heads of Government (held 25–28 February 2024), the region is making steady progress in improving its food and nutrition security. According to the Communique’, “73 projects and programmes which support the 25 by 2025 initiative are being implemented by over 13 regional partners and donors.” Indeed, the entire agriculture and food ecosystem must be strengthened through decisive and coherent policies, as well as solid investments by both the public and private sectors to enable the production of food crops, vegetables, and livestock in sufficiently large quantities to reduce the importation of food and meats. My article of 1 June 2022 offered 10 recommendations to improve food and nutrition security in the region.
On fuel imports, there is some scope for import substitution in the production of electricity from renewable energy, given the region’s natural endowments. Accelerated action by both the private and public sectors towards diversifying the region’s energy mix is a strategic imperative in the context of strengthening energy security, building resilience, and reducing vulnerabilities.
While the region does have some degree of control over the quantity and quality of food imported (note that I did not mention price), the reality is regional food production requires that most of the production inputs be imported. Irrigation systems, hydroponics systems, tractors, trucks, forks, storage tanks, material to build greenhouses, cutlasses, water boots, fertilisers, and agro-processing equipment for example, are required, which must be imported because those are not produced in the Caribbean. Regarding the production of electricity using renewable energy, while there is some scope for import substitution, only partial substitution is possible because most of the production inputs (equipment, technology, and technical services for example) must be imported.
The button line is this; Caribbean countries cannot escape the fact that imports are inextricably linked to citizens’ standard of living. While governments must deploy appropriate measures to cushion the impact of imported inflation, the preoccupation with reducing imports is perhaps misplaced especially because in a small open economy, both imports and exports lubricate the economic wheel. The policy focus must shift towards enhancing the sophistication of firms and expanding their productive capacities to enable countries to earn foreign exchange in excess of what is needed to pay for imports. The excess should be saved to accumulate foreign reserves to help build economic resilience.
