Steba 25th Anniversary Speech

Steba 25th Anniversary, October 31st 2009 St. Eustatius: Small Island – Big Challenges When Nora, my wife, and I decided to come to live on the island I was in a hurry to come, even more than Nora. I saw so many obvious opportunities that I was afraid to be too late and that others would have picked them up already. I have the pleasure and the privilege to live on Statia now for over 22 years. In the meantime I learned that my haste 22 years ago was somewhat unfounded. I came more than on time to make use of the opportunities that I had identified, leaving still a lot of others unexplored. Many of them have remained unexplored simply because there were apparently not many other entrepreneurs who saw the opportunities the way I did. During my years in Statia I have learned what are the challenges and obstacles to develop a successful business and also what it takes for an island as Statia to achieve economic development. I will not use this occasion to criticize the various governments I have seen over the years on how they did facilitate economic development, nor will I point my finger at the private sector for not grabbing the opportunities that have from time to time presented themselves. What I want to do is to try to point out the bottlenecks and challenges we are facing as a small island economy. These are challenges however that are not unique for Statia but do apply for any other small scale economy. The issue is that we have to face these challenges and find solutions to overcome them. Despite their differences, small island economies share many features. Small islands are often isolated, lack economies of scale, have high transportation and communication costs, are susceptible to natural disasters and have limited means and capacity to develop adequate infrastructure. These islands typically have very limited export and depend often to a great extent on tourism as the main economic activity. All these characteristics are making it tough to do business and make islands economically vulnerable. In accordance to a recent study by the World Bank however it is a small island state, namely Singapore, that is the easiest place in the world to do business. The elements that made Singapore successful might not be easily replicated by other small islands, but Singapore’s core fundamentals are connectivity, openness, reliability and enterprise. Effective, transparent and secure government services are also an important part of Singapore’s success. The same report from the World Bank shows that if you combine all best practices from all small island developing states into one country, this country will be the easiest place in the world to do business.

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The aforementioned means that Statia is not unique and that we have to look around us and learn how others are running their economy and adopt their best practices into our economy. I now take some time to touch some of the specific bottlenecks and challenges that we as an island are facing and need to overcome. Statia’s first limitation is our infrastructure. When thinking about infrastructure we should not only think about roads and other physical works but also about services such as power, communications, water etc. But first let’s talk about the physical part and in particular the harbor and the airport. It is without doubt that these two entry ports require upgrading to attract tourism and other forms of business to the island. However it makes no sense to spend millions in these ports without improving the hinterland. A nice and expensive harbor or airport alone brings no additional business to the island. We foremost need to create reasons for a visitor or a business to come to Statia. For tourism for instance this simply means that we need to build hotel rooms and offer sufficient activities for the visitor to do. For financing of infrastructural projects we always like to look for donors like The Netherlands and the EU to assist us with financial aid. Many believe that private firms are not interested in participating in infrastructure in small, remote island economies. On the contrary, private companies play a large role in financing infrastructure on small islands. For instance many islands in the Caribbean have a long history of successful private sector ownership in utilities. And many outside the Caribbean have successfully introduced private participation in infrastructure. As an example our port is of great importance for NuStar Terminals, the largest private company on the island. Now is the time to start discussions with this company to explore possibilities for a Public Private Partnership to improve our harbor facilities. The logical next subject to address is airlift and accessibility. Of course we do criticize the services offered by Winair. And this criticism is most of the time just. But as in the case of the ports, if the product of Statia is not improved and more developed and more visitors are attracted to our shores it is highly unlikely that another airline or more seat capacity will be used to fly into Statia. With just seventy hotel rooms it will be pretty much impossible to attract any additional airlift to the island. Although the electricity supply on Statia is at this moment on an acceptable level we have to pay keen attention to what is happening in St. Maarten, where the main office of GEBE is established. The company is in disarray resulting in poor service and many power outages. We also have to look at the future. Next year the main office of our power company will be in another country. What will be the consequences for Statia? Do we want to rely on a company that cannot handle their affairs in their own country? In 2011 the present concession for Statia of GEBE will expire. This creates a golden opportunity for the government of Statia to evaluate the present situation and to explore other options such as strategic partnerships with utility companies abroad.

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Our communications are on the level of a developing country, which is a negative factor for the development of our island. Our phone services, land lines as well as cell phones can best be described as mediocre. Internet speed available is unacceptable low. And for all of this we pay far too much. It is a proven fact that improved communications have strengthened the position of small island economies in the past two decades. We therefore have to look outside the box. We have to let go our national pride. EUTEL and the island are too small to compete independently. Poor service and high cost for the consumer are a direct result of the economy of scale. Bold steps need to be taken into strategic partnerships and maybe even a merger with a larger player in this field. The World Bank is of the opinion that the average of 65 days that it takes to start a business on small islands is too long. For Statia bringing the time to get a business license down to 65 days will be a tremendous improvement. If Government is serious about economic development, the first step it needs to take is to establish a transparent and efficient system to accommodate the establishment of businesses on the island. As a matter of fact Government may want to reconsider the business license regulation entirely. Facilitating the creation of business is one of the most important tools in the development of an economy. To acquire a business license in Statia remains an enormous challenge. Serious entrepreneurs and investors are loosing their interest and do not establish and invest in our island. Analyses across economies show that while employment regulations generally increase the tenure and wages of the workers, overly rigid regulations may have undesirable side effects. These side effects include less job creation, smaller company size, less investment and longer spells of unemployment, and thus loss of skills. All of which may reduce productivity growth. Excessive regulations are to the detriment of businesses and workers alike. Governments all over the world face the challenge of finding the right balance between worker protection and labor market flexibility. It is however very important to avoid making regulations as a goal in itself in stead of a tool to stimulate a healthy employment and business climate. Another issue is the import of foreign labor. In order to achieve economic development the availability of a sufficient and adequate labor force is a first requirement. Seeing the small scale of our population any substantial new development will require the importation of foreign labor. Skilled as well as unskilled labor is insufficiently available in Statia. Government policy should aim at filling the gab between demand and the availability of indigenous labor. Unskilled migrant workers may be necessary only in the short- and medium term, where the demand for skilled workers and professionals will increase with economic development. Skilled workers, professionals and entrepreneurs may be recruited and encouraged to make Statia their home. The rational is not just to increase the level of skills in an expanding economy, but to ensure that these skills are

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imparted to the local population and continue to be reproduced in future generations thereby enhancing population quality. Another very important subject I want to address is taxes. Taxes are essential. Without them there would be no money to provide for public amenities, infrastructure and services that are crucial for a properly functioning economy. Yet according to the World Bank tax rates and tax administration, rates among the top five obstacles to doing business. Where taxes are high and remaining gains seem low, many businesses and investors simply choose to stay away. Besides this, many existing small businesses in Statia are facing another extremely important issue, which is the tax compliance. The business community and the government need to start paying attention. If we do not take this problem serious, many of Statia’s small businesses are heading for a disaster. The recently published quarterly report by the tax department shows clearly the problem the small businesses are in. Up to this moment less than 30% have paid or filed their income tax. Also less than 30% have paid or filed their profit tax. Only 60% of the businesses have paid or filed their turnover tax. What is even worse is that 35% of all businesses that have people employed do not pay or file their employee’s wage taxes, which they suppose to deduct from their employee’s salaries. And mind you all of this is over the last five years. The report also does not give any information on the assessed tax debts the entrepreneurs that did file but did not pay. I am very much afraid that also this category is in the danger zone. The staff of the tax office in a recent public meeting explained that it is not their intention to go so far as to seize homes or properties, but as these are the results they are booking I don’t see what their alternatives are. The sad part is that many of these small businesses did not comply because they willfully intended to duck the system and on the account of the country’s taxes lived the high live. I don’t see these entrepreneurs building great mansions or driving around in expensive SUV’s. The situation is the direct result from ignorance, a poor business climate and a laid back attitude from the part of the entrepreneurs, fueled by a total lack of enforcement of the tax laws by government. STEBA has sounded the alarm bell in a letter to government early September. It is almost two months later and there is still no reaction. I assume that nobody wants all these businesses to be forced to close down so it is high time to wake up to avoid unnecessary disaster. In the process leading towards our new constitutional status also preparations are being made to restructure our present tax system. For our island it is of paramount importance that a tax system will be introduced that will attract and encourage entrepreneurship and investment, local as well as foreign. If we are serious about economic development we cannot afford to have a system introduced that will not accommodate these goals and proves to be counterproductive. Although it is a pity that possible valuable input by the private sector in the discussions leading up to a new tax system has been ignored I profoundly hope that our government leaders will understand the seriousness of an investor- and business friendly tax system as one of the most positive indicators for our economic development.

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The quality of entrepreneurship is another serious challenge the island is facing. The recent stricter enforcement of the tax laws has made abundantly clear the lack of administrative and entrepreneurial skills among our SME’s. To start a business more is required than just a business idea. The entrepreneur needs to be educated on how to properly manage his or her business, needs to know at least the basics of business finances and administration and need to be acquainted with the applicable laws and regulations. While for the existing entrepreneurs extensive upgrading programs have to be designed, it is important that for our future entrepreneurs our education system and the specific demands of skills in the private sector need to be synchronized. The same of course counts when it comes to the employees. Rumors have it that moneys available under the SEI, some Nafl 125.000., for small enterprise training and development will be reallocated and spend in harbor development. I sincerely hope that government realizes that this will be wrong. These funds and much more than that are needed to upgrade and educate our SME sector. In closing I want to take this opportunity to congratulate the business community and the membership of STEBA with the milestone of this 25th anniversary of the Association. I would like to encourage also those businesses who are not a member as yet to join. Your membership serves not only to support the organization. Membership may also be in the interest of your company. STEBA, as a collective body, will be able to represent your general interest more effectively than you will be able to do as an individual company. Remember the slogan of STEBA is: United we are stronger!

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