Chinese FDI, potentials and pitfalls

Chinese influence in the Caribbean has been increasing over the past 15 years both in terms of the number of their citizens living and transiting through the region and the level of investment.

An Inter American Development Bank paper is saying that, even though the main sources of Foreign Direct Investment (FDI) in the region currently come from the US and the UK, potentially, there is an opportunity to attract much more FDI from China than the region is currently receiving.

Its author, Richard Bernal, discusses examples of FDI in the region, the general reaction of the Caribbean to this Chinese outreach and what can be done if the region hopes to capitalise on the third largest source of FDI in the world.

According to Bernal, the Chinese have made US$119 billion in loan commitments to Latin America and the Caribbean since 2005. These have been largely to finance Chinese firms’ construction of energy and infrastructure projects.

This in turn is an outgrowth of the deliberate effort of the Chinese to become more involved in the global economy and increase their influence.

The paper notes that the “economic circumstances of the Caribbean countries make increased Chinese FDI an important new development.” It also lists the beneficiaries of Chinese FDI from 2005 to 2013, with TT receiving increasing amounts in these years from $US 0.8 million in 2006 (there is no record for 2005) to $US 3.9 million in 2013. It also lists the investor firms and the value of their investments.

These are the Chaoyang BVI, ($0.78 million in oil production), the China Investment Corporation ($850 million in natural gas) and the memorandum of understanding signed between NGC and the ENN Group.

This is in line with Bernal’s assertion that Chinese investors are particularly interested in energy and ministerals, but also agriculture and tourism.

He said since the Caribbean is not the only area of the world that provides these investment opportunities, it should strive to make itself more attractive. It can do so, he said, through better marketing with “sustained and planned campaigns” as opposed to investment promotion missions.

Such efforts could be assisted by embassies and government and promotion agencies. Bernal also suggested that the efforts should be unified.

“The Caribbean, as a group of small investment destinations, should collectively present the region as a cluster development opportunity for China. The efficacy of tourism presenting the Caribbean as a region in which there are broad similarities and commonalities has been proven throughout the region, without obscuring the uniqueness of each country.” The paper also said that their should be more “linkages, joint ventures and strategic business alliances” between Chinese and Caribbean firms, with improvements made in the ease of doing business on the Caribbean side. The region should also utilise the strong business networks created by the Chinese nationals, who have in some territories, been living in the region since the late 19th century.

But Bernal also laid down some cautionary areas for Caribbean countries to be aware of including local resentments against increased Chinese presence and cites some examples across the islands, inclusive of TT’s architects, “having complained about the employment of Chinese workers on projects being executed by Chinese firms.” Foreign ownership of important assets were also likely to fuel “narratives” of asset stripping where profits are removed from the national economy, hampering longer development aims.” Governments, Bernal said, should also establish a regulatory regime that ensures the right kind of investor comes to the country, is respectful of the environment and resources, that they share technology and utilise local labour.

Corporate governance, a weak point in several jurisdictions, came up for mention.

“Due diligence and the institutional capacity to undertake it, on foreign investment will be paramount for the Caribbean countries to protect against money laundering and to ensure the protection of national standards and reputations.” From successive Manning administrations to the Kamla Persad Bissessar admininstration, the Chinese have been playing an increasing role in this country’s economy, particularly in its construction and energy sectors.

The observations Bernal has made has important implications, especially if the Chinese presence is going to become more prevalent.

Given the reduction in FDI from energy firms and the need expressed by both the Prime Minister and Energy Minister that we need to get more of our oil and gas out of the ground, there may be a further role for the Chinese to play here.

But as Bernal has pointed out, we may also have to pay closer attention to how the Chinese and their FDI contribution is integrated into the economy and the governance mechanism that will oversee this process.

At least one commission of inquiry related to the role of Chinese labour and firms in contructing national projects has demonstrated this.

Ultimately too, we may have to adopt a wait and see approach of the Trump government to China and how the US will react to a Caribbean becoming closer to it.