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ST. KITTS & NEVIS BUDGET SPEECHES

2007 Budget Address - click here >>> PM Douglas 2007 Budget Address.doc (202.5 Kb)

ST. KITT'S AND NEVIS 2006 BUDGET ADDRESS

This address was delivered in the St. Kitts and Nevis Parliament on Tuesday 13th December 2005 by Prime Minister and Minister of Finance, the Hon. Dr. Denzil L. Douglas from 10:15 A.M. to 1:45 P.M.

1.                  Madame Speaker, I beg leave to move the second reading of the Bill shortly entitled the Appropriation (2006) Act, 2005.

INTRODUCTION

2.                  This year we have been confronting the mammoth challenge of dismantling the sugar industry that has held sway in our Federation for over 400 years. This industry has touched the life of every citizen of our Federation, and has exerted an imposing influence on our culture and institutions, and on the shape and form of our society. It is an industry on which we will reflect for many generations to come, with a mixture of pleasant and revolting memories. After all, this industry has been associated with some of the worst atrocities of slavery, immigration and colonialism. But at the same time the sugar industry has also stood as a memorial to the successful struggle of our forefathers to lift themselves out of the pits of deprivation and subjection and to take control of the resources committed to this industry as the means of creating a brighter future for themselves and their successors.

3.                  For over a quarter of a century since the planters had thrown up their hands in despair and were prepared to cash in on the lands and abandon the industry, our people held on to the reins and continued to eek an existence out of an industry that was continuously troubled by erratic prices in international markets, fluctuating exchange rates, poor weather conditions, natural disasters and a wide array of other maladies.

4.                  When our people took the reins from the planters in the 1970’s, the industry was already in very poor shape, but sugar was the only thing that the vast majority of our workers knew, and there was hardly any other option available to them at that time. The choice faced by most of them was continued employment in the sugar industry or a protracted state of extreme poverty and deprivation.  In short, sugar or starvation.

5.                  This is the reason why the diversification of our economy has been one of the primary objectives of my Government and why we have so vigorously taken up the challenge of building a well diversified service economy here in our beloved Federation. We were determined that our workers would not be left without viable options in the event that we were forced out of sugar production. We are therefore quite pleased that we have reached the stage where sugar production accounts for about 2.5% of our Gross Domestic Product, and that we can still look forward to increased economic activity in 2006, the first year during which there will be no sugar production in the Federation.

6.                  In other words, the demise of the sugar industry did not come upon us like a thief in the night. While we were exerting every effort to preserve and protect the industry for the benefit of the numerous estate workers and factory workers, we were also keenly aware that not all of the relevant factors were within our control, and we therefore set about putting the right infrastructure in place to promote the creation of jobs and the transformation of our economy with a view towards opening up new vistas of opportunities for our sugar workers and for all Kittitians and Nevisians.

7.                  The implementation of the strategy for transforming our economy did not begin when the factory horn signalling the end of crop blew for the last time earlier this year. It has only been accelerated. For instance, from the moment that my Government entered office in 1995, we immediately tackled the unemployment problem that had kept so many of our young people on the periphery of society. Our Short-term Work Experience Programme, introduced within months of the assumption of office by my Government, has made a serious and indelible dent in the level of unemployment in our country, and transformed some 1200 unemployed and disenchanted young people into productive members of our workforce.

8.                  We understood that unless the unemployment problem was addressed comprehensively and definitively, the closure of the sugar industry, which was being advocated at the time, would only have piled on unemployment upon unemployment with dire social consequences.  But we also knew that the economy had to be kept on a path of economic growth, if we were to sustain the expansion in employment and create even more opportunities for our people to unleash their considerable talents, abilities and resourcefulness in the pursuit of self advancement and national progress. We therefore pursued a policy of infrastructure-led growth and of creating an economic climate conducive to domestic and foreign investment.

9.                  Hence, despite the many hurricanes that destroyed our infrastructure over and over again, our country still boasts some of the finest physical and economic infrastructure in our region. Our road network, which is continually being upgraded, has drawn commendation throughout the region. Our telecommunication systems are state-of-the-art and have facilitated the participation of our people and enterprises in the regional and global economies. Indeed the recent battle between the telecommunication giants that has been bringing down the cost of telecommunication in our Federation at a rapid pace, testifies to the success of my Government’s strategy of liberalizing the telecommunications industry and fostering competition for the benefit of consumers.

10.              My Government has also invested heavily in port infrastructure. We redesigned Port Zante and made it more secure through the implementation of a massive revetment project that has brought confidence to investors and has resulted in an immense surge in demand for real estate at Port Zante. This facility, which remained idle for so long, is now buzzing with activity and is acting as a magnet for substantial inflows of foreign investment. In addition, the contractors are now mobilizing with the view to implement a contract for the upgrading and expansion of the Robert L Bradshaw International Airport.

11.              Our efforts at creating an investor-friendly climate and promoting economic growth have yielded significant results and helped to prepare us for the transition of our economy from the production of sugar. Our ability to attract the impressive Marriott Hotel to our shores has resulted in a significant boost in tourism arrivals and has spawned a wide array of tourism-related enterprises including hotels, restaurants, gift shops and various entertainment facilities. Moreover our ability to attract foreign capital to our railway operations has allowed our many visitors and residents alike to experience the rich natural treasures resident in the interior of St Kitts, and has placed our Federation at a significant competitive advantage in the relevant segment of the tourism market.

12.              A wide range of other private sector investment projects are also at various stages of planning or implementation.  These include on the island os St Kitts the impressive La Vallee Golf Course and Tourism Development Project, the Potato Bay Villa and Commercial Development Project, Kittitian Heights in the White Gate Area, the planned expansion of Rawlins Plantation Inn, Horse Racing and Entertainment Facilities at Beaumont Park, a Dolphin Park at Friars Bay and the massive Hotel, Villa Development, Golf Course and Marina Project being pursued by the Auberge Group that currently operates some of the finest and most exclusive hotel properties on the face of the globe.

13.              Our economic statistics confirm the outstanding performance of our country in attracting investments to our shores. During the 1980’s Direct Foreign Investment stood at an annual average of 11.3% of GDP, then at 12.5% in the 1990’s and at an impressive 22.8% since the turn of the century. It is therefore not surprising that in 2002 St. Kitts and Nevis was ranked 3^rd (third), after Luxembourg and Chad in the United Nations Index of Foreign Direct Investment Performance. The OECS as a whole ranked 20^th in this important index.

14.              Madame Speaker, my Government’s very successful programme of social development has also helped to prepare our country to cater to the needs of the persons affected by the demise of the sugar industry. In particular, we have provided affordable homes to over 1500 families in the Federation, including the families of hundreds of sugar workers. We have revolutionized our health system and have provided easy access to medical and health care for all of our people, including the poor, the elderly, the mentally and physically challenged, and persons with chronic ailments. In fact, it is through this impressive health system that our sugar workers continue to enjoy, free of charge, the high quality medical care that was previously provided by the SSMC.

15.              Our Social Security Scheme has grown by leaps and bounds, and has progressively increased its minimum pensions and its assistance pensions to improve the lot of many indigents and many of the elderly persons among us. In particular, over the ten years my Government has been in office, assistance pensions jumped from $1040 per annum to $2640 per annum and minimum pensions increased by $1440 from $2160 per annum to $3600 per annum. We have also empowered Social Security to take over the pension obligations of the SSMC as a means of protecting the welfare of retired sugar workers who were enjoying pensions paid by the SSMC at the time of its closure.

16.              Madame Speaker, our Ministry of Education provides free education to all of our children and examination fees, free meals, and free books to children of poor families, including the children of hundreds of sugar workers. Our Ministry of Social Development has implemented a wide range of programmes that have brought great relief to the poor and underprivileged among us. These programmes include the provision of school uniforms for children of low-income families, the caring of the aged, the protection of children, and the promotion of gender equity. The success of these social programmes is beyond doubt and is verified by the ability of our Federation to consistently occupy a leading position among the top performers of the world as measured by the United Nations Human Development Index.

17.              It is clear, therefore that although my Government has unveiled and implemented an impressive package of assistance tailored specifically to the needs of our displaced sugar workers, the extensive social infrastructure that we have put in place for the benefit of all of our residents and citizens, has helped to cushion the social impact of the closure of the sugar industry. Moreover, the growth of our economy over the years has helped to give our sugar workers a number of employment and entrepreneurial options to choose from as they seek to build a better life for themselves and their families.  

18.              Of course we fully appreciate that there are still many sugar workers that need help and we will continue to reach out to them and provide support and counselling where necessary. In fact, I have instructed the SSMC Transition Management Office to keep track of every single displaced sugar worker and to report on their progress on an ongoing basis so that appropriate and timely assistance could be provided to them as required.

19.              We know that the transition from sugar and the transformation of our economy cannot be completed overnight and that there are still many challenges which we will have to confront along the way but we believe that we are on the right path and heading in the right direction.  Hence, as a people, we must therefore continue our efforts to build up the momentum and move our country steadfastly along the road to increased prosperity and a better quality of life for all.

20.              Unfortunately, the environment in which we are pursuing our programme of economic transition and transformation is not the most favourable one. Oil prices have been at an all time high for much of this year. This has carried up the price of gasoline and electricity in our Federation and around the entire globe, and threatens to stifle global economic activity and push up the rate of inflation. At the same time, our enterprises are faced with the challenge of sharply raising their competitiveness to take full advantage of the CSME and to survive and prosper in an intensively competitive global economy.  In addition, the reconstruction of our economy after repeated natural disasters has carried total public sector debt, including the debt of the SSMC, to $1966.3 million or over 177% of GDP at the end of the last fiscal year.

21.              All of these issues must undoubtedly exert a significant influence on the strategic focus of economic policy formulation and implementation in our Federation.  In particular, our development strategy must continue to give high priority to fiscal consolidation and to the reduction of the public debt, which if left unchecked, could undermine the growth potential of our economy and put at risk much of our very outstanding social and economic progress. However, our approach has to be balanced and it must give due weight to all the objectives that we have set ourselves and to all the factors critical to the advancement of the quality of life of our people.

22.              The key objectives that have guided the budget preparation exercise this year, include:

v     The continued transformation of our sugar-based economy into a modern, service-oriented, well diversified economy replete with opportunities for our people, including our former sugar workers, to progressively advance their standard of living.

v     Continued macroeconomic stability characterized by relatively low levels of inflation; improved balance of payments operations including the further narrowing of the balance of trade deficit and continued increases in foreign direct investment; and sustainable levels of economic growth that would not only generate additional employment opportunities but would also support Government’s efforts in respect of fiscal consolidation and debt reduction.

v     The progressive reduction of the stock of public sector debt through continued fiscal consolidation, the privatization or commercialization of Government’s assets and enterprises deemed amenable to private sector operations, and increased efficiency in the operations of statutory bodies.

v     Further reduction in poverty through the continued implementation of a wide range of social programmes and by the refinement of such programmes to ensure they are more precisely directed and that they reach the people who are genuinely in need of the services delivered by such programmes.

v     The reduction of crime and violence through even more vigilant and effective law enforcement and the continued implementation of comprehensive crime reduction strategies that take full account of the social, psychological and economic dimensions of criminal behaviour.

v     The continued empowerment of our young people through even more focused youth development programmes and the expansion of educational and employment opportunities that specifically target our young people.

v     The maintenance of an appropriate balance between physical development and environmental sustainability.

23.              Madame Speaker, our attainment of these important objectives is not only dependent on our own domestic circumstances, but also on the external environment that has been the source of much instability in so many countries, especially small island states such as ours. I will therefore proceed with an examination of the international and regional developments of relevance to our Federation.

THE EXTERNAL ENVIRONMENT

International Economic Developments

24.              Madame Speaker, despite the robust growth in world output in 2004 of 5.0% and the acceleration of services sector output in the first quarter of 2005, world output has been slanting downwards in recent months. In 2005, it is estimated that world output will fall to 4.3%, as a result of the slowing down of global growth in manufacturing and trade in the first quarter, the impact of higher oil prices, and the weakening of business confidence in most major world economies in the second quarter.

25.              In industrialized countries, GDP growth is projected to ease moderately to 2.5% in 2005 from 3.3% in 2004. The United States is expected to exhibit growth of 3.5% in 2005 as a result of solid productivity growth. This is likely to be the highest growth rate for any of the industrialized countries in 2005. This estimated level of growth for the USA is quite impressive in view of the enormous cost to life and property and the direct impact on GDP growth inflected on the US by Hurricanes Rita and Katrina. In Spain and Canada growth output is projected to remain constant at 3.2% and 2.9% respectively, while in Germany, France, United Kingdom and Japan growth is expected to slow to 0.8%, 1.5%, 1.9% and 2.0%. Notwithstanding the overall decline in world output, the impacts of the Tsunami on the South Asian Countries and of Hurricanes Rita and Katrina in the United States, unemployment in advanced countries, surprisingly, has declined from 6.3% in 2004 to 6.1% in 2005 and is forecasted to decline even further in 2006 to 5.9%.  Moreover, even with these substantial declines in unemployment, inflation has remained relatively subdued.

26.              A recent publication of the IMF World Economic Outlook (WEO) shows that on average, growth in developing countries has declined to 6.4% in 2005 from 7.3% in 2004.  In countries such as China and India, however growth is surging and is underpinned by strong liquidity in the banking system, robust expansion in the information technology sector, and accelerating industrial production. In the developing countries of the Western Hemisphere projections reflect the continuation of the downward trend in output growth.  For 2005, forecasts indicate a 1.5% decline in output, underscored by declines in domestic demand and political uncertainties in some countries in Latin America.  

27.              Against the background of higher world oil prices, the World Economic Outlook projects global growth to stabilize at 4.3% in 2006. This stabilization is broadly on track with global expectations for growth brought on by accommodative macroeconomic policies in some countries, benign financial market conditions and increasingly solid corporate balance sheets. However there is still a great deal of uncertainty in the global economy with oil prices threatening to rise in the future. According to the World Economic Outlook, this is not the only area of concern, as attention must be paid to the indirect effects of higher oil prices on household savings.  This has negatively impacted private consumption and weakened the purchasing power of households particularly in the United States.

28.              Madame Speaker, it has become increasingly clear that the gyrations of the global economy will continue to present significant challenges for us. In particular, the increase in oil prices could stultify our attempts to foster economic growth. While global inflation is still quite moderate, the risk of escalating consumer prices continues to be a source of concern for Central Bankers around the world, and this fear of inflation is exerting upward pressure on interest rates. While the vast majority of our public debt has been negotiated at fixed interest rates, we could still be affected by substantial increases in international interest rates if we find it necessary to raise new loans to refinance maturing loans or to fund our capital budget. It is therefore critical that we generate significant levels of domestic savings through fiscal consolidation and capital market development, and reduce our reliance on external financing for new projects.

29.              I turn now to Regional Economic Developments.

Regional Economic Developments

30.              Despite the challenging global economic environment that we now face, most of the countries within the Caribbean managed to improve their economic performance in comparison to the 2003 period. In the OECS, real GDP growth for the 2004 period accelerated to 3.9% from 3.5% in 2003.  The major contributor to this improved performance was St. Kitts and Nevis with a growth rate of 6.4%.   St. Lucia placed second in terms of real GDP growth in the OECS region, growing by a commendable 3.6%. 

31.              Madame Speaker, in my last Budget Address I referred to the economic difficulties that both Dominica and Grenada were facing at that time.  I am pleased to report that, to date, the Dominican economy is showing signs of economic recovery anchored by an 11% growth in the Hotels and Restaurants Sector.  It is projected that the economy of Dominica, underpinned by strong macroeconomic policy and increased private sector investment, will continue to grow in the upcoming year.

32.              Unfortunately, the Grenadian economy is still suffering from the impact of hurricanes.   Consequently, the Grenadian economy contracted by 3% for the 2004 period, as most of the major sectors registered declines.  Although growth was recorded for the government services sector, the transportation sector, and the communications sector, the increases were not nearly enough to offset the reduction in the other major sectors.  We fully appreciate and understand the difficulties of the people of Grenada because we have walked that road before and while our economy has recovered from the spate of natural disasters that shook our islands, the scar of public debt is still with us. We are hopeful though, that with the continued resilience and fortitude of the Grenadian people, their economy will return to the path of economic growth.

33.              Most of the larger member countries of the Caribbean Community recorded positive growth in real output in 2004.  Among the larger economies of the Caribbean, Trinidad and Tobago experienced the highest growth rate of 6.7%, underscored largely by an increase in the productivity and output of the energy sector.  The economy of Belize recorded a growth rate of 5.0%; This however, represented a downturn in growth from 9.4 % recorded in the previous year, as a result of a decline in activity mainly associated with the tourism sector.   The effect of major natural disasters in Jamaica and the Bahamas resulted in economic growth rates falling below earlier projections.   

34.              Madame Speaker, I have no doubt whatsoever that the CSME will bring great benefits to the Caribbean Community as a whole and would help to raise regional growth rates.  The CSME would enhance the region’s prospects for the efficient utilization of labour and other factors of production, while providing access to a greater variety of goods and services in a more competitive environment.  This could in turn accelerate the pace of regional economic development, and provide improved standards of living and enhanced employment opportunities in the region.

35.              However, while the benefits of the CSME for the region as whole is beyond doubt, it has become quite clear that not every country in the region will share in these benefits unless some appropriate mechanism is put in place to redistribute the gains of the CSME in a fair and equitable manner. As I indicated in last year’s budget address there could be some winners and some losers as we proceed with the implementation of the CSME. It is now quite clear that OECS countries will be among the losers. Earlier this year, Heads of Government of the OECS received a study commissioned by the OECS Secretariat, which presented hard data highlighting the real and potential benefits and challenges for OECS Member States’ participation in the impending CSME.  The study highlighted the fact that the balance of trade between the OECS and the rest of CARICOM has been increasingly unfavourable to OECS countries, widening from US$214 million to US$481 million between 1980 and 2003.

36.              Moreover, one of the distinguished Economists of the OECS and the Caribbean as whole, Sir Alister McIntyre has expressed the view that “the provisions in favour of the LDC’s in the revised Treaty of Chaguaramus need to be revisited and operationalized, as a priority matter.” He further opined that “a case can be made for elaborating these provisions in the form of detailed annexes to Protocol VII of the Revised Treaty of Chaguaramus or in texts of equivalent legal authority.”

37.              I fully support Sir Alister’s position on the need to activate the provisions in favour of the LDC’s. I also believe that the proposed Regional Development Fund could play a significant role in redistributing the gains of the CSME. In fact, I share the view of a number of OECS Heads that the establishment of a properly constituted and well-funded Regional Development Fund is an important prerequisite to the participation of the OECS in the CSME.

38.              In addition, even if the issues surrounding the Regional Development Fund are resolved expeditiously and we are able to proceed with the implementation of the CSME in January 2006 as planned, it will also be necessary to monitor the progress of the OECS countries in the CSME and keep the relevant Protocols under review so that appropriate adjustments could be made to ensure that the tiny nations of the OECS are afforded special and differential treatment in the CSME as intended by the original framers of the CARICOM Treaty when they placed the OECS countries in the category of Less Developed Countries.

39.              I am confident that the people and leaders of the Caribbean will resolve all outstanding issues in a manner that facilitates the expeditious implementation of the CSME to the benefit of the Caribbean Community as a whole and each individual member state. We are therefore proceeding with our preparations for participation in the CSME. In particular, we have made good progress with the implementation of the provisions relating to the freedom of movement of people, and we have recently launched our machine-readable passport in the format agreed to by CARICOM member states.

40.              Madame Speaker, The Political Party that I am privileged to lead, has had a long tradition of giving strong and unwavering support to the regional integration movement. We believe that, in view of the trend toward globalization and the increasingly fierce and intense competition in global markets, regional integration is even more critical to the progress of the Caribbean region than ever before. We will remain true to this tradition. But we firmly believe that the regional integration movement could only stand on a firm footing if the relevant institutions are governed by the principles of fairness and equity, and if each member draws real and tangible benefits from participation in these institutions.

THE DOMESTIC ECONOMY

Output, Prices and the Balance of Payments

41.              This year has been particularly encouraging for the St. Kitts and Nevis economy.  Following a difficult two-year period in 2002 and 2003 when economic activity was relatively sluggish, the Federation of St. Kitts and Nevis posted an impressive growth rate of 6.4% in 2004. This performance is commendable by any standard but especially when viewed against the backdrop of our relatively high public sector debt, the uncertain global economic climate, war and terrorism around the globe, and rising oil prices.  Indeed, our growth rate has eclipsed the average growth rate of 3.9% for the Eastern Caribbean Currency Union as well as the average of 5.6% for developing countries in the Western Hemisphere and the average of 3.3% for the industrialized countries. In the Caribbean as a whole, only Trinidad and Tobago, with its massive windfall from increased energy prices managed to surpass the very remarkable growth rate achieved by our Federation.

42.              What is even more remarkable is that this exceptional level of economic growth was not accompanied by a massive escalation in consumer prices. In fact, during 2004, the rate of inflation as measured by the movement in retail prices remained relatively subdued at 2.3% for the year. Moreover, a comparison of retail prices in the first six-months of this year with retail prices in the first six months of last year reveals that the inflation rate has remained stable at 2.2% per annum.   

43.              Madame Speaker, the main impetus for the 6.4% growth in 2004 emanated from increased activities in the areas of Tourism, Transport, Non-Sugar Agriculture, Manufacturing and Construction.  The Tourism Sector, in particular, recorded very impressive growth in 2004 as a result of the substantial increases in tourist arrivals that was facilitated by the increase in the stock of hotel rooms and the resulting increased airlift into our Federation. The performance of our Tourist Industry is reflected in our GDP statistics by a mammoth 32.6% increase in the output of the Hotel and Restaurant sector.

44.              Madame Speaker, I will now speak to the Balance of Payments statistics, which records the inflows and outflows of funds arising out of transactions between the Federation of St. Kitts and Nevis and the rest of the world.  In 2004, the Federation’s current account position improved quite remarkably relative to 2003.  The current account deficit narrowed to $236.4 million or 21.3% of GDP in 2004 from $312.5 million or 31.3% of GDP in 2003.  This significant improvement was due mainly to higher tourism receipts, which grew by 39% to reach $282.9 million in 2004.  On the other hand, the merchandise trade deficit expanded slightly by 1.2%.

45.              Madame Speaker, during 2004 several major investment projects were completed.  Therefore, significantly lower inflows of foreign direct investment were recorded, and as such, the surplus on the Financial and Capital Account fell by 10.0% to $267.6 million or 24.1% of GDP.  Nonetheless, the overall balance of payments position of St. Kitts and Nevis recorded a surplus of $36.9 million or 3.3% of GDP in contrast to the deficit of $2.6 million or 0.3% of GDP that was recorded in 2003. 

The Tourism Sector

46.              Madame Speaker, my Government has identified tourism as one of the major components of our economic growth strategy and we have therefore channelled much of our resources to the development of this sector. The contribution of the Hotel and Restaurant sector as a percentage of GDP has increased from 5.6% in 2003 to 7% in 2004, which is indicative of our efforts here.  However we believe that this increase is very conservative as tourism activity is much more pervasive.  In this regard the formulation of tourism satellite accounts is being considered in order to capture activities in the sector, which are not currently included in our formal GDP accounting. 

47.              Madame Speaker, a much clearer insight into the performance of the sector can be gained by looking at the figures in respect of stay-over visitors.  In 2004 there was a whopping 32.6% increase in stay-over visitors in the Federation.  This momentum has continued unabated into the first half of 2005 where already a 19.4% increase has been observed.  It is therefore anticipated that when the final figures for 2005 are revealed another bumper year would have been achieved.  Our efforts at increasing cruise passenger arrivals have also been successful.  Cruise ship passenger arrivals to St. Kitts increased by 78% in 2004, up significantly from a 12.5% decline recorded in 2003.  This has been attributed to a number of factors including improvements to the port facilities which renewed the confidence of the cruise lines; the operations of the St. Kitts Scenic Railway; and the ongoing efforts by the Tourism Authority to enhance the tourism product and the visitor experience.

48.              Madame Speaker, the closure of the sugar industry has therefore come at a time when this government was already laying the foundation for a vibrant and sustainable tourism sector.  My Government has sought to maximize the sector’s contribution to GDP, to expand the sector’s ability to generate additional foreign exchange and to increase the employment opportunities within the sector.  It is well known and documented that over the past ten years my government has spent large sums of money building, repairing and improving and, in the case of Port Zante, rebuilding critical physical infrastructure for the tourism industry.

49.              The airport expansion project, which is now getting underway, is directly related to our efforts to improve our ability to handle more airlift and to welcome the expanding flow of visitors and residents through our international airport. The adjoining airport bypass road project will not only expedite access from one side of our city to the next, but it will help to ease the incidence of downtown traffic congestion which threatens the quality of the visitor experience. Snail pace traffic through busy city streets is not a desirable experience anywhere for anyone, and it certainly must not become a regular part of our visitor’s experience.

50.              Madame Speaker, both of these large capital projects are necessary and economically viable because of the future projections for the growth of our tourism industry. Over the past year, several future private sector owned tourism projects have been announced, valuing in excess of US $700 million and to be built out over the next two to five years. Such projects will be taking place on the Southeast Peninsula, in Frigate Bay, at Whitegate, at La Vallee and on Nevis. Care will be taken that these projects, one or two of which have already broken ground, will be compatible with the natural environment of our islands while transforming our country’s ability to supply additional high quality accommodation and recreation facilities including luxury hotel rooms and villas, world class golf courses, and at least one super yacht marina. The attraction of these high value and high quality investments from the local, regional and international private sector speaks volumes for the high confidence that the financial and entrepreneurial sectors have in the future of our tourism led economy.

51.              Madame Speaker, during the past ten years my Government has also invested heavily in the training of our young people and has launched the Hospitality Services Division at the Clarence Fitzroy Bryant College where students are being taught the value of academic training while being exposed to an understanding of the requirements of customer service in the real market place. There are more of our young people being trained in tourism today than ever before. However, we need to make sure that we continue to expand our ability to marry academic training with internships and real job opportunities in the work place, so that our heavy investment in training can be translated into successful and enjoyable careers in tourism for our youthful population.

52.              My government understands that Tourism is an economic development tool, which should not be measured, in mere growth of arrivals. Tourism has been a key component of my government’s economic development strategy from our very first day in office. But the need to wind up our sugar industry has brought with it the opportunity for a greater sense of urgency and focus on the development of our hospitality services sector. However, one of the strengths of the sugar industry was its ability to reach into our communities and bring income to even the poorest of families. Hence, if Tourism is to effectively replace the sugar industry we must maximize its impact by fostering strong linkages between the tourism sector and key sectors including agriculture, and craft production.

53.              We cannot measure the importance of such a   vital sector by just head count. The business of tourism must be measured by the real contribution that it makes to our country’s national accounts, by its impact on the livelihood of our people and our communities and by its contribution to the profitability and growth of stakeholder enterprises of all sizes. We need to measure more effectively the contribution that tourism expenditure makes to the sectors of our economy which supply services directly to the visitor, including such establishments as hotels, casinos, bars, restaurants, night clubs, sites and attractions, duty free shops, taxi operators, artists and craft producers. We also must better measure the impact of tourism expenditure on indirect service entities such as food and beverage import distributors, manufacturers of brewery products, soft drinks and other local products, our farmers and fishers, entertainers, security services and other service suppliers to hotels, restaurants and accommodation facilities.

54.              Madame Speaker, the increased level of excitement that is now being generated about the future of our tourism industry must not be taken for granted. It has come as a result of a lot of hard work, in the past and in the present. But there is even more work to be done in future if we are to achieve our objectives as an emerging tourism destination. Our ultimate goal is to create a tourism product and reputation that can compete on the same level with the finest destinations in the world. The future quality of our country’s product and reputation will be best measured by the actual Kittitian-Nevisian experience that our visitors have while here, and what they actually say about us to their friends and family when they return home. Madame Speaker, our country’s reputation for cleanliness, safety, natural beauty, a colourful history and caring people, must be strengthened and protected at all costs if we are to have a vibrant and sustainable tourism industry in the future.

The Sugar Industry

55.              Madame Speaker, the 2005 sugar crop brought to an end the production of sugar in St. Kitts and Nevis.  For this crop output fell by 3,428 tons or 24.2% to 10,729 tons relative to 14,157 tons in 2004.  Such a low level of output has been attributed to the fact that only 60% of the crop was harvested. The volume of sugar exported therefore was grossly affected, falling to approximately 10,000 tons, which represents a 25.0% decline over the 2004 exports.  Consequently, net earnings from sugar exports also declined. As at the closure of the sugar industry on July 30th 2005 total liability owed by the St. Kitts Sugar Manufacturing Corporation (SSMC) to the St. Kitts-Nevis-Anguilla National Bank and the Development Bank was EC $347 million. It is anticipated that by the end of the year the debt will increase to $380 million mainly as a result of interest payments and the winding up expenses, including severance payments to the workers.

56.              Madame Speaker there is no doubt that the decision to cease the production of sugar for export under the EU/ACP Sugar Protocol Agreement is among the most momentous that any Government of this Country will ever make. It is momentous not just because it is the culmination of a thirty-year old treaty that had underpinned the social and economic development of our country but more importantly because it brings to an end one of the longest and most significant periods of our history.  A history which saw our free fore parents torn from their ancestral homes and brought here to toil under the most unimaginable circumstances of cruel servitude. A history, which ultimately records their triumph through us their descendants who now inherit the earth so liberally sprinkled with their blood, sweat and tears. To that extent the decision to cease the production of plantation based monoculture heralds the end of an era about which if we are honest we will admit that we have mixed feelings.

57.              I believe that all of our citizens and our national and international partners, stakeholders and friends are aware that we are currently in a transitional period vis-à-vis the sugar industry and that a considerable amount of time and effort have been put into carrying out urgent, and critical activities, necessary not just to expiate the past, but more importantly to secure the future. These activities are continuing and include winding up of the sugar industry operations; making arrangements for the redundancy of sugar workers and the payment of severance and other benefits; securing and managing the SSMC’s assets; retiring of the debt of the sugar industry; implementing soil conservation, drainage and ghaut stabilization programmes; managing the socio-economic impact; sourcing funding for transitional activities; implementing social safety net programmes; planning for the alternative use of the sugar lands; and charting the course for the wider economic adjustment.

58.              Madame Speaker, dealing with the transition to date has been an arduous and difficult task constrained as we are by human, technical and financial resources and I think that at this time it is only fitting for us to thank all those who have assisted us either directly or indirectly through the provision of technical assistance and other resources. I would particularly like to highlight here the role of IICA that from the very outset provided us with the team leader for the Transition Management Team and other resources for feasibility studies. The British Government’s Department for International Development has also been quick to assist us and we have benefited from their timely intervention through which we have been provided with corporate advice on the SSMC, and funding for land use analysis and for a review of social protection strategies.

59.              Other significant partners that have assisted us and continue to provide essential support include the Republic of China “Taiwan”, CIDA, CARICOM, CDB, CARDI, the OECS, ECCB, the IMF, the World Bank, the Government of Cuba, the OAS, various UN Agencies such as FAO, UNDP and UNEP as well as the USA, Sweden and Norway. The EU is of course our main point of reference on this issue simultaneously fulfilling the roles of treaty and development partner. We will continue to negotiate with the EU and to interact constructively with them through the European Commission to secure the best possible outcome for St. Kitts and Nevis. We thank all of our partners for their support and would ask that they consider that we are at only the very beginning of a long process of reconstruction and development and we will be depending on their continued assistance.

60.              While we reflect on the distant and not too distant past, we are more determined than ever to continue to forge an economically bright and prosperous future for our people demonstrating, as one wit puts it, that life can be even sweeter without sugar. That is why our immediate concern following the end of the 2005 crop was to ensure that workers in the sugar industry were given their just desserts and paid the severance package that had been negotiated by their trade union. The total severance package for sugar workers based on the 1961 Collective Bargaining Agreement signed between the Labour Union and the SSMC amounted to some EC$27 million. Madame Speaker, I am proud to say that despite false rumours and wild conjecture my Government decided to honour that agreement in full. Some EC$18 million was paid out in September of this year, the rest will be paid over the next few months.

61.              Madame Speaker, we have also set out to establish social programmes to support and cushion the most vulnerable as they embark on a working life outside the security of the industry. To this end, we have been implementing a comprehensive package of assistance for sugar workers which includes free access to medical care, the securing of the pensions of retired sugar workers through the Social Security Scheme, training and job attachments with a stipend of $250 per week, the provision of irrigation and farm equipment, duty and tax concessions to facilitate entry into farming, fishing, and taxi or passenger bus operations, and easy access to land for the purpose of farming. My Government, supported by our development partners, has also launched a number of social programmes, ranging from managing change and psychological counselling modules to financial counselling and job specific retraining programmes that have been designed for and continue to be delivered to workers from the industry.  Former sugar workers are also being assisted in finding alternative employment and many have done so.  Indeed, within a few months after the closure of the industry at least 205 of the displaced workers had already found alternative employment.  In addition the OECS Labour Survey has indicated that at least 600 jobs are available in the private sector.  The challenge for us now is to prepare the former sugar workers to take up these positions.

62.              The sugar industry dominated the economy and society of St. Kitts and Nevis for over 350 years and it has only been in the last twenty years or so that we have seen a significant waning of that economic influence as we have been able to stimulate other economic sectors such as tourism, banking and light manufacturing. We recognize, therefore, that the Country must undertake a comprehensive reconstruction programme in the wake of the upheaval caused by the loss of so important an industry in order to maintain economic and social stability and eventually to generate self sustaining growth not only in a post sugar agricultural sector but in all sectors of the economy.

63.              Madame Speaker, in the immediate aftermath of the 2005 crop we quite rightly focused on the social impact of the loss of the sugar industry. But we are keenly aware that the standard of living of the former workers could only be secured and improved over the long-term by sustained economic growth. We are therefore devoting much of our attention to the acceleration of the economic transformation necessary to maintain and increase the high level of social development for which we have been cited internationally. We are in the process of completing an Adaptation Strategy and Action Plan, as required by the European Union for the awarding of assistance to mitigate the impact of the changes to the Sugar Protocol Countries from 2006. So far the EU has allocated 40 million Euros for the 18 ACP sugar-producing Countries, including St. Kitts and Nevis for 2006. Allocations for the period beginning 2007 have not yet been determined.  We do not know at this time what the allocation for St. Kitts and Nevis will be for either of these time periods. We do not even know exactly when EU resources will be available. We are therefore entering a period of great uncertainty with regards to both the level and the timing of assistance that we will be receiving to support us through this difficult time.

64.              Madame Speaker, while I have spoken of the difficulties and challenges that we face in managing this historic change, I believe that exiting from a failing sugar industry has also provided us with significant opportunities. It is important that we see the adaptation process of the ensuing period as an opportunity to reconfigure the economy of St. Kitts and Nevis to be more productive, responsive and competitive. Earlier in my address I spoke about the contribution of the tourism industry to our economy and its expanding role in generating backward and forward linkages with other industries through creating demand for goods and services. Later I will be looking at the expanded opportunities for non-sugar agriculture as factors of production such as land, once reserved exclusively for the sugar industry are freed up. What I am urging us all to do is to positively embrace the openings that accompany all the changes consequent on the exit from sugar production.

65.              In this regard, we are currently exploring the feasibility of using sugar cane to generate energy both in the form of biomass and through the production of ethanol. Similarly, the historical assets of the sugar industry are an invaluable cultural resource that can be preserved while also being used to enrich the tourism experience in our Country. We have therefore requested the assistance of the European Union in establishing a sugar museum and in helping preserve many of the historical assets of the sugar industry for our own education and enjoyment and as tourist attractions. We are also in discussion with private investors in respect of a range of other enterprises that we expect would make good use of the resources released from sugar and provide alternative jobs for sugar workers. These proposed enterprises include rum production, fresh water fish farming, shrimp farming, fruit juice processing and the production of cut flowers.

66.              Of course, we expect that non-sugar agriculture would be an important source of employment, growth and foreign exchange earnings in our post-sugar society. Hence, I will now address non-sugar agriculture specifically.

Non-sugar Agriculture

67.              Madame Speaker my Government understands the critical importance of non–sugar agriculture in our transition away from sugar production.  The agricultural sector is a sine qua non in terms of our economic development strategy and will therefore feature prominently as we position our economy for the future.  As the competent authority in this regard the Ministry and Department of Agriculture have developed a strategic plan for the development of non-sugar agriculture over the period 2005 to 2009.  One critical area to be addressed would be the development of water for irrigation.

68.              My Government has been seeking support from external agencies and during the month of October a positive response was received from the Food and Agriculture Organization (FAO) that funds have been approved for a water harvesting study.  Access to water sources will enable farmers to expand the period of vegetable production from six to twelve months of the year.  Special focus during the plan period will also be placed on the production of locally grown fruits.  Moreover, the Department of Agriculture has already expanded its propagation of fruit trees including the traditional ones such as sugar apple, custard apple and soursop. 

69.              This year the Ministry of Agriculture successfully hosted the fifth Caribbean Week of Agriculture, which attracted 160 overseas participants, as well as 10 regional Ministers of Agriculture.  Of special interest were the Department of Agriculture’s 10th Anniversary Open Day and Regional Trade Show that were held this year as part of the Week’s activities.  The trade show attracted exhibitors from the region who were able to demonstrate a wide range of processed agricultural products thereby demonstrating to local farmers additional opportunities for adding value to their farm produce.  Also on display was a wide range of local crop produce indicating that the technology exists for the production to expand beyond the traditional first half of the year.

70.              Madame Speaker, the implementation of the strategic plan has separate programmes for crop and livestock development.  The general objective of the crops programme during the plan period is to facilitate commercial production of crops so as to ensure food security, foreign exchange savings and sustainable development.  During the first nine months of 2005 crop production generally declined when compared with the same period for 2004.  The decline was due mainly to the very high rainfall during October and November of 2004 and the dry conditions during February and March of this year.  These extreme weather conditions adversely affected crop growth and resulted in reduced yields.  The only increase in production was recorded for yam from 33,000 lb in 2004 to 43,000 lb in 2005.

71.              Madame Speaker, the output of the livestock sub-sector has declined in the first half of 2005 but we expect that with the implementation of our strategic plan livestock production will quickly return to the path of growth that has secured for us a doubling of pork production and the approximate quadrupling of beef production over the four years between 2000 and 2004. The strategic plan for 2005 – 2009 clearly outlines a national plan for livestock development with its main objective being to increase food security.  In particular, we propose to encourage the establishment of commercial farms, investigate the possibility of using sugar cane for feeding cattle, introduce new breeds of sheep, construct dog proof areas to secure small ruminants, identify appropriate pig production sites with adequate provision for sanitation, housing and feeding and allocate a sufficient area of land to livestock production to facilitate the local production of a greater percentage of the meat consumed in our Federation.

72.              Madame Speaker, the Department of Agriculture has also identified potential sites around the island specifically for pig production.  This is critically important as we make strides to enhance our tourism product where the issue of aesthetics is of major concern.  This is expected to significantly increase pork production once farmers commence production.  Madame Speaker, I personally have noticed the large volumes of hams and other pork products that come into the country at Christmas and other festive occasions and have on several occasions encouraged farmers and other entrepreneurs to get into processing thereby adding value to their produce and getting better prices.  My Government is therefore committed to giving the necessary support and incentives to persons who are interested in these kind of value added activities.

73.              Madam Speaker let us now turn our attention to fisheries. Total fish landing in 2004 increased to 913,790 lbs or 37.9% with a total value of $6.0 million, $1.2 million more when compared to the corresponding period in 2003. This is evidenced by increases in the catch of higher priced pelages such as dolphin, snapper, tuna, mackerel and conch. The first nine months of 2005 was also inspiring as the value of fish landing increased to $5.1 million, nearly 11% more than the $4.6 million recorded for the same period in 2004. This is indeed impressive given the fact that total poundage declined for the period. It is very encouraging also to know that our fisher folk are becoming more competitive and looking towards higher priced catches that would yield more value for their efforts.

74.              Over the years, my Government has shown its steadfast support for the fishing industry.  I am happy to report that the Old Road Fisheries Complex funded by the Government of Japan is presently in the first phrase of implementation and significant activity is scheduled to take place in the 1st Quarter of 2006. The complex is marked for completion in 2006 and thereafter similar projects slated for Sandy Point and Dieppe Bay would be undertaken.  Plans are also in motion Madame Speaker, to build a much needed fisheries complex in our sister island, Nevis. 

Industrial and Enterprise Development

The Manufacturing Sector

75.              Madame Speaker, activity in the manufacturing sector stabilized during 2005.  Having withstood varied setbacks originating from instability in the global economy and the effects of 9/11, we are now seeing new stages of growth and recovery in many factories.  In fact, generally, 2005 has shown much improvement in the performance of the manufacturing sector as a whole.

76.              For instance, there have been significant expansions at Kajola Kristada Ltd. and Jaro and Lutron Liamuiga. In fact, Lutron Liamuiga opened up some 50 new job opportunities during this year. A number of companies, including Sun Island Clothes, Victory Packaging Company and Kajola Kristada have also introduced new products with a view to enhancing the competitiveness and market appeal of their product lines. On the other hand, Sensor Scientific had to close its doors in March of this year, and Carib Craft Studio and Custom Coil had to downscale their operations as a result of unfavourable market conditions. 

77.              The prospects for future growth in the manufacturing sector are quite good. My Government is also in discussions with two new manufacturers looking to join the sector, one to be involved in the manufacturing of latex products such as latex gloves, condoms and plastic bags; and the other in creating paper hand bags.  Moreover, the continued growth of the economy of the USA is resulting in increased demand for electronic products in particular, and Lutron Liamuiga as well as Electrofab are reaping significant benefits from this growth in demand.

Small Enterprise Development Unit

78.              Madame Speaker, My Government continues to pay very close attention to small and micro enterprises. In particular, the Small Enterprise Development Unit (SEDU) continues to help entrepreneurs by providing financial assistance, training, monitoring and mentoring programmes.  During the year 2005, SEDU processed thirty-four (34) loans of which one third of the clients were female entrepreneurs.  SEDU has also been involved in organizing and conducting training programmes for the SSMC workers. SEDU helped to arrange a two-day training workshop, “From Niche Idea To Business Plan”, which was facilitated by the Caribbean Technological Consultancy Services Division of the Caribbean Development Bank and was attended by forty employees of the SSMC drawn from management, administrative personnel, technicians, tractor drivers and field workers.

79.              SEDU continues to place considerable focus on equipping our young people with the skills required to pursue entrepreneurial ventures. In this regard, SEDU played an important role in the establishment of the Innovative Company Project of the Junior Achievement Programme on St. Kitts and Nevis. Groups of students representing most secondary schools in the Federation were involved in the pilot programme coordinated by the Eastern Caribbean Central Bank. The programme sought to help young people better appreciate and understand the role of business in our society.  It provided basic education for students at the Secondary level by having them organize and operate an actual business enterprise.  The project was delivered in collaboration with the Non-formal Youth Skill Training Programme.  It was designed to train fifteen (15) young entrepreneurs for business in three skill areas - Landscaping, Barbering and Hairdressing. The UNESCO funded programme was conducted over a period of three months and participants attended training fulltime.   Upon graduation participants also received assistance in the form of equipment.

80.              Madame Speaker, another critical activity that is being undertaken by SEDU is the Pan Caribbean SME-ICT Competitiveness Development Programme.  This is an initiative by the Commonwealth Secretariat that seeks to enhance the development of SME and ICT/E-Commerce strategies of competitiveness in the Caribbean.  Presently the staff of SEDU is undergoing training to enable them to play a major role in the implementation of this important programme that is so much in keeping with my Government’s quest to promote the competitiveness of our enterprises so that they fully exploit opportunities in the CSME and in global markets.