04 April, 2003 - Belmopan
MEETING WITH THE TREASURY SECRETARY, HON JOHN SNOW
WASHINGTON, APRIL 11, 2003
PRESENTATION BY THE HON RALPH FONSECA
GROWTH THROUGH NEW BUSINESS CREATION AND FOREIGN INVESTMENT
Mr. Treasury Secretary ( USA ) and my fellow Finance Ministers from Central America:
On behalf of the Government and People of Belize, I wish to express my grateful thanks to the Treasury Secretary, Mr. John Snow, for initiating this important meeting at a time when the fragile economies of developing countries have become all too vulnerable to a volatile global environment. We, in Belize, are already experiencing the impact of the Iraq War in terms of higher fuel costs and a deceleration of tourist traffic that is the mainstay of our economy. Other Central American and Caribbean countries may well be facing similar difficulties. Your initiative, Mr Secretary, could not have come at a more opportune time.
Mr Secretary, we share the view expressed by you recently that economic security of a country is as important as its national security and that we cannot choose one over the other. These are the twin pillars supporting your country's greatness and the well being of the American people. We applaud President Bush's recent; Jobs and Growth Plan; which will create and secure jobs and sustain economic recovery at home.
We believe that a similar initiative is urgently needed to rescue and reinvigorate the troubled economies of the Central American and Caribbean countries. What readily comes to mind is the; Enterprise for the Americas Initiative; (EAI), which, with its three components of investment, debt reduction and environmental protection, is as relevant today as it was when the then President Bush launched it in 1990.
On the subject of; Growth through New Business Creation and Foreign Investment; I think the key to success is the liberalization of investment regimes as a means of attracting the scarce capital critical to sustained growth. The objective for Central America must be to compete effectively for investment in a world of limited resources and to attract the capital of their own nationals back home. This should be coupled, as with the EAI of 1990, with an IDB sector lending program to provide fundamental support for investment reforms.
In our view, the investment climate of a country as host to foreign direct investment should have (i) political and macroeconomic stability; (ii) proper investment incentives and policies governing the formation of business as well as its operations; and (iii) favourable operating conditions.
Other factors which may affect the investment decision of the investor as to location are (i) international variables; (ii) host country variables and (iii) production factors.
Belize, as a small, democratic and open economy, has always recognised that to speed up the pace of our development and improve the welfare of our people, we need to tap into the savings and technology of the global economy. Attracting foreign direct investment has therefore been high in our priorities.
Although fiscal incentives are important in attracting foreign investors, they are certainly not the only factors influencing investor confidence and investment decisions. The focus of our drive to attract foreign investors has been on improving our infrastructure and the skills of our people, creating a transparent, enabling business environment and maintaining a stable political climate that encourages private sector led growth.
Over the years, much investment has gone into the national infrastructure and now we have a robust network of countrywide paved roads. We have continued to invest heavily in education, and we are actively positioning ourselves to better exploit the explosive growth occurring in the field of information technology. A critical human resource objective is to have a highly literate and versatile work force, easily trainable to meet present and future needs.
To boost foreign investment, Belize has advanced from a mono-crop economy at the time of colonial rule to one much more diversified today, building on the twin pillars of agriculture and services. Belize is now playing a unique and paramount role as the gateway for trade and investment between the Caribbean and the Central American regions. The Government and the private sector are instilling new technology in a host of sectors, augmenting non-traditional food exports; like farm-raised shrimp and Tilapia; and expanding a growing data services industry.
To eliminate poverty while avoiding fiscal deficits leading to an unmanageable debt, Belize has successfully liquidated assets invested by Belizeans over the years. One key element of this strategy is the privatisation program that constitutes a radical structural reform that includes regulations to deal with monopolies. Over the last few years, we have completed the privatisation of the telecommunications industry, the electricity industry, the water industry and the port services. The privatisation program also responds to the dire need to bring down electricity, telecommunications, water and port charges, while increasing their efficiency and making them globally competitive.
The other key element to muster fresh resources through the sale of assets is the mortgage securitisation program. Most of these mortgages were originally funded with resources paid by taxpayers. Their sale abroad has allowed Belize to revive its much-needed housing program, allowing our people to benefit from the pool of resources devoted to this program some years ago. We believe that serious reconsideration should be given by the IMF as to the handling of these transactions- especially in developing economies in order to assist their credit ratings.
To help recover from the damage of four hurricanes in three years, Belize went to the international market in August last year with a US$125 million bond issue, underwritten by Bear Stearns, that helped the Government to restructure its debt and to reduce short-term foreign liabilities by US$72.5 million. The bond issue was, in fact, over-subscribed, which bears testimony to the confidence of the international business community in Belize's economy. Here again we believe that the IMF can be more sensitive to the devastating realities on an economy after these natural disasters.
Belize has cultivated an enabling environment to foster healthy business development and transparent market practices. There is political stability, a democratically elected Government, a Constitution that guarantees the right to property and an independent judiciary.
Our laws provide for a wide range of investment vehicles for foreign investors. Apart from the usual duty exemptions and tax holidays under the Fiscal Incentives Act, we have a tax-free regime of Export Processing Zones that provides for the establishment and operation of EPZ's within Belize to promote economic growth and development, to stimulate new investment and to create new employment opportunities.
Our Commercial Free Zones legislation was enacted to attract foreign investment and it provides for various activities, including manufacturing, processing, packaging, warehousing and distribution of goods and services. The benefits provided under this Act are exemptions from customs duties and sales tax on any material required for the proper functioning of the business, and income tax holidays during the first ten years of operation.
Since its inception in 1994, the CFZ at the Mexican border to the north of Belize has experienced phenomenal growth. There are now plans to set up similar CFZ's in the South and West of Belize and also one at the Belize International Airport.
We have also enacted the Retired Persons (Incentives) Act, which is designed to encourage and promote the inflow of foreign capital into Belize by offering tax exemptions and incentives to; qualified retired persons; with all these incentives, because of a simple but broad based tax system, our tax to GDP ratio is one of the highest in the region at almost 24%.
To disseminate information about investment opportunities in Belize, we have established the Belize Trade and Investment Development Service (BELTRAIDE) that acts as Belize's; One-Stop-Center; for investment and trade activities.
As a direct impact of FDI, Belize has become increasingly more services-oriented, with contribution to GDP of the services sub-sector moving from 48.9% in 1984 to 56.5% in 2000. Important areas of growth driving this change have been hotels and restaurants and financial intermediation. Much foreign investment has been concentrated in the tourist sector (hotels and restaurants), with financial intermediation encouraged through a medley of laws promoting international financial services.
In Belize, we design our investment climate around three principles:
The activities and performance of SMEs are regularly reviewed by BELTRAIDE, which also ensures that the legislative reforms are effectively implemented by the relevant authorities.
To enable SMEs to obtain easy financing, we have established a Small Farmers and Business Bank.
In addition, the Development Finance Corporation (which is a Government body in transition) also assists SMEs to obtain financing on easy terms. The IFIs should be encouraged to develop innovative instruments to assist such institutions.
Belize also has a Small and Micro Enterprises Association that interfaces with the relevant public bodies to ensure that SMEs continue to play a pivotal role in economic growth and sustainability.
To conclude, Belize's experience of achieving sustained high growth through the development of SMEs and attracting foreign investment, which I have outlined above, would, I hope, be of interest to other Central American countries and stimulate further discussion on the subject. THANK YOU!!