Barbados - Industrial Development and Export Promotion Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2797-BAR BARBADOS STAFF APPRAISAL REPORT INDUSTRIAL DEVELOPMENT AND EXPORT PROMOTION PROJECI February 29, 1980 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  BARBADOS STAFF APRAISAL REPORT INDUSTRIAL DEVELOPMENT AND EXPORT PROMOTION PROJECT CURRENCY EQUIVALENTS (Since July 1975) Currency Unit = Barbados Dollar (BDS$) US$1 = BDS$2 BDS$1 = US$0.50 BDS$1 million = US$500,000 GLOSSARY OF ABBREVIATIONS BDB - Barbados Development Bank BIDC - Barbados Industrial Development Corporation BIMAP - Barbados Institute for Management and Productivity BMFC - Barbados Mortgage Finance Company BNB - Barbados National Bank CARICOM - Caribbean Common Market CDB - Caribbean Development Bank CET - Common External Tariff EIB - European Investment Bank EPA - Export Promotion Agency EPC - Export Promotion Corporation IDB - Inter-American Development Bank NTB - National Training Board  FOR OFFICIAL USE ONLY BARBADOS STAFF APPRAISAL REPORT INDUSTRIAL DEVELOPMENT AND EXPORT PROMOTION PROJECT Table of Contents Page I. THE ECONOMIC SETTING. 1 Introduction . Major Economic Activities . Population and Employment. 2 II. THE MANUFACTURING SECTOR. 3 Structure and Growth. 3 Manufactured Exports. 4 Industrial Incentive Policies. 5 Tariff Policy. 7 Industrial Estates. 7 Industrial Sector Outlook. 8 III. THE FINANCIAL SECTOR. 8 introduction. 8 Main Financial Institutions. 9 Monetary and Financial Policy .10 Trends and Prospects in Industrial Lending .12 IV. THE PROJECT .............................................. 12 A. Project Objectives and Content ....................... 12 B. The Industrial Estates and Investment Promotion Program ............................................ 14 Objectives ............................................ 14 Institutional Background ............................. 14 Future Operations .................................... 16 Construction Program ................................. 17 Execution Schedule and Procurement Norms .... ......... 18 Technical Assistance and Training .... ................ 20 Capital Costs and Financial Arrangements .... ......... 20 C. The Industrial Lending Program ....................... 23 Objectives ........................................... 23 The Barbados Development Bank (BDB) .... .............. 23 Past Operations ...................................... 25 Future Operations and Prospects ...................... 26 This report is based on the findings of a mission which visited Barbados in September 1979. The mission comprised Messrs. Penalver and Goderez, and Ms. El Baroudy (all of the Bank), Mr. Bolte (UNIDO/IBRD) and Mr. Mitchell (Consultant). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  TAble of Contents (Continued) Page D. The Export Promotion Program ......................... 28 Objectives ........................................... 28 Institutional Background .i........................... 28 The Export Promotion Corporation (EPC) .... ........... 29 Technical Assistance to the EPC ...................... 30 E. The Vocational and Management Training Programs ...... 31 Vocational Training .................................. 31 Management Training .................................. 33 F. Overall Project Costs and Financing Plan .... ......... 34 V. THE BANK LOAN ............................................ 36 Borrower and Terms ........................................ 36 Channeling of Bank Funds ................................. 36 Loan Components and Terms to Final Users .... ............. 36 Free Limits .............................................. 37 Procurement, Disbursement and Auditing ................... 38 Repayment Terms of Bank Loan ...; ......................... 39 Project Benefits and Risks ............................... 39 VI. AGREEMENTS AND RECOMMENDATION ............................ 40 Agreements ............................................... 40 Recommendation ........................................... 42 ANNEXES 1. Estimated Schedule of Disbursements of the Proposed Loan *--. 43 2. Supporting Tables and Charts .........s...................... 44 3. Selected Documents and Data Available in Project File ......... 73 MAP  I. THE ECONOMIC SETTING Introduction 1.01 Barbados, a small island in the Southeastern Caribbean Sea, has an area of 431 km2 and a population of 250,000. GDP per capita is relatively high at close to US$2,000 (1978: US1,940) and incomes are fairly evenly distributed. Since independence (in 1966), the main economic base of the country has shifted from sugar cane agriculture to tourism and industry. Raw sugar production peaked in 1967 at over 200,000 tons, declining to an average of little over 100,000 tons per year during 1974-1978. In spite of recent small gains in non-sugar crops, the share of agriculture and fishing in GDP declined from 16% in 1970 to about 11% in 1978 (Annex 2, T-1). Major Economic Activities 1.02 Locally produced oil and natural gas have in recent years provided an increasing share of primary energy supply while the importance of bagasse as domestic energy source has declined due to the reduction in sugar pro- duction. Domestic crude oil production rose from 13,000 barrels in 1973 to over 240,000 in 1978 and currently satisfies over one fifth of domestic consumption of petroleum products. Nevertheless, foreign exchange expendi- tures for imports of domestically consumed oil and petroleum products have more than tripled since 1973 to BDS$38 million in 1978 (7% of total imports). The search for additional off-shore oil is continuing and prospects are considered good for a substantial increase of domestic production in the medium term. Eventually; about one third of consumption is expected to be satisfied from domestic sources, 1/ but foreign exchange expenditures for petroleum imports will continue to rise rapidly. 1.03 Tourism is an important dynamic factor in the Barbadian economy. While tourism in other Caribbean countries has suffered from economic reces- sion and political and social unrest, it has prospered in Barbados, providing rapidly increasing shares of domestic product, employment and foreign exchange earnings. Tourist arrivals were 317,000 in 1978, twice above the number of 1970 and the share of tourism in GDP reached 11.6% compared to 8.7% in 1970. Direct employment in tourism is estimated at about 6,700 with an additional 6,000-7,000 service jobs catering mainly to tourism. Thus, the total employment in tourism represents about 15% of the labor force. 2/ Gross foreign exchange earnings from tourism also rose rapidly, reaching BDS$257.0 million in 1978. Tourism has important linkages to other sectors of the 1/ Winston Cox: Alternative Sources of Energy Available to Barbados, Central Bank of Barbados, 1979. 2/ A review of the tourism sector is provided in the Economic Memorandum on Barbados, Annex III (Report No. 2506-BAR).  - 2 - economy, particularly construction activities that benefit from building of hotels and tourism related infrastructure, and provides a potentially important market for domestic food production and other consumer goods as well as handicrafts. 1.04 The manufacturing sector has demonstrated a simile