Caribbean Plan Fails to Bring Wide Investment : U.S. Effort Disappoints Region With Too Little Funding, Unrealized Potential

Prime Minister James F. Mitchell of St. Vincent was voicing his skepticism about the Reagan Administration’s Caribbean Basin Initiative, a program designed to change the fortunes of needy countries through private investment and trade.

“Two weeks ago, a group of investors from North America came to St. Vincent and expressed a keen interest in investing in a plant to manufacture certain types of supplies,” Mitchell said.

“Naturally, one of their questions was whether we did have a good water supply system,” he said. “In all fairness, I had to acknowledge that the kinds of supply figures which they had in mind would be far more than we could ever provide at this point.”

The investors lost interest, and St. Vincent lost a chance at new jobs for some of its many unemployed workers.

The Caribbean Basin Initiative, or CBI, was begun nearly three years ago with the goal of promoting job-creating investment in the Caribbean and Central America. Its mainspring is duty-free access to the huge U.S. market for a wide range of products through 1995.

But while the opportunities offered by the American market have been welcome, they have failed to spark widespread investment and development in the Caribbean Basin. Mitchell is not the only one who is disappointed.

The CBI’s failings and unfulfilled potential were among the main themes of discussion by hundreds of officials and businessmen attending the 10th annual Miami Conference on the Caribbean last week.

Poor Infrastructure

As Mitchell observed, poor infrastructure is a major obstacle to the kind of industrial and agricultural growth envisioned by the CBI. “It would be naive to think that we could seriously motivate our private sector or that of the U.S. to exploit these fantastic new opportunities if we do not have a proper road network, good transportation facilities, including airports and seaports,” Mitchell told the conference. “Reliable power generation and telecommunication systems have to be also in place.”

He complained that U.S. financing for infrastructure development under the CBI has been “less than adequate.”

Participants at the conference pointed out other major obstacles to CBI success:

- The developing countries of the region not only lack adequate infrastructure, their limited industrial base and lack of technology hamper their capacity for fast growth. Some of the smallest countries, such as St. Vincent--with 110,000 people--are severely limited in the size of investment they can absorb.

- Although most Caribbean Basin products can enter the U.S. market duty free, key items such as garments and leather goods still must pay duties. And it is in garment making and leather working that many Caribbean countries have the experience and potential for fast expansion.

- While promoting the CBI, the United States has cut imports of sugar, one of the Caribbean Basin’s main exports. U.S. sugar imports for 1986 are expected to be down about 70% from the level at the beginning of the 1980s.

- U.S. legislation permits U.S. producers to start proceedings aimed at imposing countervailing duties on imports that they say compete unfairly with their own. This has raised doubts about the reliability of the CBI’s duty-free promise.

- The threat of more protectionist bills in Congress, aimed at keeping low-priced imports from eroding American industry’s capacity to provide jobs, further dampens confidence in the CBI program.

- In some countries, especially in Central America, social and political conditions do not inspire investor confidence.

- Most Caribbean Basin countries lack domestic capital for new investment. In fact, they export capital to pay for imports, to service their foreign debts and to invest in more profitable or more secure markets.

- Under current world conditions, the flow of foreign investment capital is toward industrialized countries and away from developing ones.

- Caribbean and Central American agencies trying to entice investors from the United States must compete with thousands of similar agencies promoting investment inside the United States.

- Bureaucratic red tape, tax structures and other constraints on private enterprise cause potential investors to shy away from many countries in the region. In some places, for example, it takes six months or more to get a telephone.

Apathy by U.S. Firms

Twenty-one countries, with the notable exceptions of Cuba and Nicaragua, are eligible to participate in the CBI program.

Lawson Calderon of St. Lucia, an investment consultant who headed his country’s National Development Corp., said U.S. companies have little interest in the Caribbean.

“They don’t know what the Caribbean Basin is,” Calderon said in an interview at the Miami conference. “There’s a big public relations gap, a big information gap. You know, St. Where? St. Elsewhere.”

He said the CBI needs to offer more incentives to spark the interest of American investors. He suggested a tax break for profits brought home from the Caribbean.

“Without something like that, the CBI is going to limp and limp and limp,” he said.

The CBI received an injection of life in February when President Reagan announced a new customs rule on garments assembled and stitched in the Caribbean. If the garments are made with American cloth, customs duties are applied only to the value added by the offshore assembly plant.

Most gains in Caribbean and Central American exports to the United States under the CBI have been in garments, electronic goods and winter vegetables and fruits.

The region’s non-traditional exports, such as electronic goods and winter vegetables, increased by 16% in 1984 and 7% in 1985. U.S. officials say that shows that the CBI is accomplishing one of its major purposes, the diversification of Caribbean Basin exports.

But total exports from the region to the United States fell by 19% in 1985. Lower prices for oil, bauxite and alumina, sagging demand for some other traditional Caribbean products and reduced sugar quotas hurt many of the countries.

Paul D. Taylor, deputy assistant secretary of state for inter-American affairs, told the Miami conference that the overall decline proves the need for the CBI.

“The CBI is designed to promote the diversification of exports . . . to lessen the region’s dependence on a few primary commodities,” he said. “Despite the disappointing results in overall export earnings, the fundamental purpose of the CBI to broaden the export base is being fulfilled.”

Jay F. Morris, deputy administrator of the U.S. Agency for International Development, told the conference: “The CBI has not failed. It just hasn’t fully succeeded.”

The U.S. Overseas Private Investment Corp., a government agency that offers loans and insurance for American investors abroad, has provided $168 million in financial support for 59 projects in the CBI and insured 129 investments totaling $193 million.

Lawrence Theriot, director of the Caribbean Basin Information Center in the U.S. Commerce Department, said the CBI’s best results have been in attracting small U.S. companies to the region.

“Big companies said, ‘The Caribbean? Naw, we do Taiwan, we do Hong Kong, but the Caribbean, no,’ ” Theriot said in an interview.

That attitude may be changing, he said, noting that Westinghouse and General Electric recently have begun operations in the Dominican Republic.

He said large companies are starting to realize that to meet price competition, it will help to use low-cost Caribbean labor for assembling the U.S.-made components of their products.

“Otherwise they are going to lose it because they are not competitive in one phase of production,” he said.

Such countries as Hong Kong and Taiwan, where labor costs have risen, are also exploring the use of Caribbean assembly plants for products aimed at the U.S. market.

Theriot’s office has organized 75 CBI investment promotion seminars in the United States and 20 in other countries. He said the seminars resulted in few investment projects.

Now, he said, his office is concentrating on “active match” promotions, working case by case to bring investment opportunities and potential investors together.