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Tuesday, June 06, 2006 

Mergers of Caribbean firms: Key to competitiveness

Tuesday June 06 2006

Dr. Richard Bernal, the head of the Caribbean Regional Negotiation Machinery (CRNM), has produced a most important paper on the survival of Caribbean businesses in a competitive global environment.

The paper should be compulsory reading for Chambers of Commerce and Industry and parliamentarians throughout the region, particularly those who hold to the view that Caribbean businesses can survive in the individual small markets of Caricom countries, and that the enabling environment of the Caribbean Single Market (CSM) is unnecessary.

Entitled, “Nano-firms regional integration and international competitiveness: the experience and dilemma of the CSME”, Dr. Bernal’s paper makes the point that “it is firms not countries that trade and invest.”

Therefore, “Caricom firms, even those that have become multinational corporations, will find the challenge of international competitiveness difficult unless they enlarge and thereby reduce or eliminate the disadvantages of being minute compared to the firms they have to compete against in the global marketplace.”

Dr. Bernal supports his argument with a telling ana-lysis of the performance of the largest firms in Caricom against some of the small multinational firms in the industrialised nations.

This is what Dr. Bernal finds: “A comparison of the top 20 firms in Caricom, Canada, Europe and the United States for the year 2003 reveals the gigantic difference in size. The biggest Caricom firm, GraceKennedy of Jamaica had revenue of $412 million compared to George Weston of Canada with $22 billion, BP Oil and Gas in Europe with $174 billion and Wal-Mart Stores in the US with $244 billion.”

He goes on to point out that “the total assets of the largest national Caricom firm, the National Commercial Bank of Jamaica (NCB) in 2003 was $2,431 billion, which is 4.4 per cent of the assets of Petrobas of Brazil, and 0.002 per cent of the $1,097,190 million of assets of Citibank of the US Allianz Worldwide of Germany with assets amounting to $796,262 million is times 328 larger than NCB of Jamaica and Citibank is 451 times larger.”

And with regard to employment, “the largest employers in the Caricom region are Neal & Massey of Trinidad & Tobago with a staff of 6,000 and Lascelles Demercado of Jamaica with 6,800 compared with General Motors and Wal-Mart of the US with well over 600,000 employees.”

The paper argues that “the facilitation of the enlargement and consolidation of Caricom firms, and thereby the improvement in their prospects of international competitiveness, is extremely urgent.”

And, of course, this “facilitation” is in part what the creation of the CSM is intended to do – to create the single economic space and the opportunity for smaller Caricom firms to merge into single entities, which would be better able to access financial and managerial resources to make them competitive.

In a few years, except for very few niche industries within local markets, every firm within Caricom will be up against stiff competition within their own countries from companies outside the region.

The rules of establishment, procurement and competition being developed within the World Trade Organisation (WTO), and even in the negotiations between the European Union and the African, Caribbean and Pacific Group (ACP), point to a situation in which Caricom countries will have to open their markets for the establishment of foreign companies.

Caricom negotiators may be able to argue for a delay in the implementation of such rules for a limited period, but they will not be able to do better than that. The world is moving inexorably to achieving what will be a single economic space.

Assertions of local ownership and calls for protection, based on national entitlements, are fast becoming things of the past, and Caribbean businesses will collapse if they wait until the new rules are in place and international competition is affecting their businesses before they begin to strengthen themselves through mergers, acquisitions and broadening of their markets both within and outside of Caricom.

Of course, mergers between Caricom firms could be better facilitated by the creation of a framework for banks and other financial institutions to more easily provide cross-border financing to firms and investors within Caricom.

Although, the major banks in the region such as the Republic Bank in Trinidad & Tobago, and FirstCaribbean International Bank in Barbados have become financiers to many Caribbean businesses, they could do more if the framework, regulations and procedures throughout Caricom was uniformed.

Further, offshore banks in countries such as Antigua & Barbuda, St Kitts/Nevis, St Vincent & The Grenadines remain untapped reservoirs of funding for Caribbean enterprises. Many of these same banks are making investment or lending money to non-Caribbean firms to finance development elsewhere.

Businesses throughout the region should be submitting their own studies to Caricom governments on how best cross-border financing might be achieved in Caricom.

At the bottom line of all this is that businesses within Caricom do not have much time to strengthen themselves through mergers and acquisitions to contend with the international competition that is surely coming within their own markets.

The CSM remains a viable vehicle through which this can be done. As Dr. Bernal states in his paper, “an enlarged market and pool of resources, which would be available in a regional market would mitigate some of the constraints of the small size of national markets and would permit the attainment of economies of scale in an increased number of economic activities.”

Sir Ronald Sanders is a former Caribbean diplomat, now a corporate executive who publishes widely on small states in the international community. You may write to Sir Ronald Sanders at: ronaldsanders29@hotmail.com

The above opinions are not necessarily those of the publisher, newspaper, its advertisers or employees.

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