Grenada has been a member of the regional currency union, run by the East Caribbean Central Bank, since 1976. Since this bank ties the value of the East Caribbean Dollar to the United States Dollar, the currency of Grenada is by extension tied to any other currency which is matched at a rate to the USD (Yagci, 2001). With the transition of developing countries to uncouple their currencies from the US following the breakdown of the Bretton Woods systems in the 1970’s, most currencies now change rapidly against the ECD, as observed with the Euro from 2010 to 2013 (Caramazza & Aziz, 1998) (Eastern Caribbean Central Bank, 2013).
Grenada has also been susceptible to a number of financial crises, both from internal mismanagement and as a member of the larger global community. From 1980 until 2013, Grenada has suffered three major financial crises specific to the nation, the first from a military takeover of the government (1983), a second for an offshore banking scandal (1999) and the last from the devastation caused by two hurricanes (2005) which left many uninsured citizens with nothing (WTO, 2011).
Grenada, being a former British colony, has be very closely tied to the monetary system of the United Kingdom (Eastern Caribbean Central Bank, 2013). After transitioning to independence in 1974, the country joined the Organization of Eastern Caribbean States (OECS) which grated it access to the unified currency, the Eastern Caribbean dollar which is managed on Nevis by the Eastern Caribbean Central Bank (Eastern Caribbean Central Bank, 2013). As noted earlier, the ECD is pegged to the USD at a set rate and as such has had a complicated effect on the international monetary system of Grenada. For starters, the trade of export goods and the value of savings is directly and often negatively affected by the response of international currency markets to the US dollar. For example, the rapid depreciation of the USD in the late 1980 had a ripple effect on Grenadian banks, some of which were publicly owned and suffered from the quick drop in the value of dollar (Meditz & Hanratty, 1987). In recent years Grenada has undergone multiple negotiations with the International Monetary Fund to restructure its debt under the Extended Credit Facility (IMF, 2013). Currently that debt sits at over 18 million USD and has hindered Grenada’s ability to receive additional funding from US and European banks (IMF, 2013).
Purchasing power in Grenada has steadily grown over the last thirty years from approximately $2,000 per capita year (1980) to more than $13,000.00 per capita year (2010) (IMF, 2011). Although the Eastern Caribbean dollar is pegged to the USD at a rate of $2.70 ECD to $1.00 USD, the economies have very different 30 year purchasing-power-parity per capita (IMF, 2011). Specifically, Grenada has experienced a more variable economic transition, with year over year percent increases reaching as high as 14.59% (1998) and retractions of -7.03% (2009) (IMF, 2013). By comparison, the United States largest growth for the same time frame was from 11.03 % (1981) and largest retraction was -3.31% (2009) (IMF, 2013). Possible reasons for the high variability in Grenada (as displayed in the figure below) is the small size of the total Grenadian economy ($1.471 Billion USD in aggregate for 2012), leaving it susceptible to larger economic swings from foreign direct investment (or lack thereof) which would not be registered in the larger United States economy ($15.66 Trillion USD for 2012) (IMF, 2013).
The Big Mac index test is not applicable for Grenada since Mac Donald’s does not exist on the island. One surprise is that although almost no US fast food chains exist on the island, Kentucky Fried Chicken is not only present but very popular (although pricing is not available for comparison) (Tomlin, 2013). The IMF world economic Outlook Database does compare a bundle of goods and services from the US and compares it to Grenada (and other countries around the world). For every $1.00 spent in the US, similar items can be had for $0.59 in Grenada (IMF, 2011). Of course, some items, especially those imported from the US or Europe are much more expensive. These include most manufactured goods and some specialty food items which do not grow well in the warm temperatures of the tropics (romaine lettuces is a notable example) (IMF, 2011).
The East Caribbean Dollar, the primary currency of Grenada, is tied to the United States dollar at an indirect rate of $ECD 2.70 to $USD 1.00. This has been the case for the last 35 years (ECCB, 2013). The pegging of the ECD began in the mid 1970’s (7 July 1976) and was employed as a mechanism to stabilize inflation and support the emerging economies of the Caribbean states, many of which were just becoming independent during that time (ECCB, 2013). The direct rate of $ECD 1.00 to $USD 0.37 causes many foreign travelers to Grenada, primarily on vacation, to feel that some goods are overpriced, causing them to pay in USD (which are widely accepted on the island) (Eastern Caribbean Central Bank, 2013).
The primary trading partners of Grenada are the United States (27.7% of imports and 11.6% of exports) and Trinidad and Tobago (25.4% of imports) (WTO, 2012). The trading rate for the USD to the ECD is set to $1.00 USD to $2.70 ECD (Eastern Caribbean Central Bank, 2013). The Trinidad Tobago Dollar (TTD) fluctuates with respect to the ECD and USD. The $1.00 ECD was worth $2.374 TTD as of the 22 July 2013 (Eastern Caribbean Central Bank, 2013). Over the past year, the TTD has fluctuated between a low of $2.3581 TTD to $2.3839 for one $1.00 ECD (Eastern Caribbean Central Bank, 2013).
Grenada made a concerted effort in the early 1990’s to become an offshore booking center, similar to Caribbean neighbors Anguilla and Antigua (EFSAG, 2013). The government’s offshore banking efforts suffered a significant setback in 2000 when a $17 Million USD Ponzi scheme was identified as being operated on the island (Jaquiss, 2002). By 2001, an international task force (Financial Action Task Force, FATF) had determined that efforts to increase regulation of international financial transactions (governed under the Grenada International Financial Services Authority, GIFSA) were inadequate to ensure transparency (EFSAG, 2013). As a result, the US Treasury issued a number of warnings and advisements to the international banking community to track banking transactions entering and leaving Grenada, advisements which were lifted by 2003 when the government had taken significant efforts to reduce potential abuses. (EFSAG, 2013). Since the mid 2000’s only a hand full of offshore banks have operated on the island. Surprisingly, the international hedge fund, Superfund Green, realizing a 49% decline in assets in 2009 and an additional 83% since 2009, is headquartered in Grenada under the direction of Nigel James, a Grenadian national (Superfund, 2013).
The government of Grenada has been very involved in attempts to foster and increase foreign direct investment (FDI), resulting in highly varying outcomes as demonstrated by a roller-coaster FDI since the 1970’s (WTO, 2011). Policy instruments, aimed at reducing the time and effort it takes to trade across Grenada’s boarders, have resulted in Grenada being ranked well below the regional average and comparatively sized markets (Grenada ranked 40 in ease as compared to the regional average of 87 and Jamaica at 97 out of 187 countries) (IMF, 2012). The government of Grenada has also instituted strong foreign investor protections, placing it 29th out of 187 nations (IMF, 2012). The protection of foreign investors has not gone unnoticed by some citizens of the island with a number of reporters calling to question the motivations of government officials and crying a foul (Benjamin, 2013) (Ferguson, 2009). Due to the limited resources of the government, most FDI instruments since 2009 have been restricted to reduction in construction permit complexity (ranked 11th globally), access to electricity (ranked 39th) and reducing hurdles to staring business (ranked 60th), some of the largest hurdles include registering property (154th), enforcing contracts (162nd) and resolving insolvency (119th).
Regional Economic Integration in Grenada
As a member of CAIRCOM, Grenada is strongly tied to regional economic interest in the Caribbean. Although not as strong other regional economic bodies (such as the EU), CAIRCOM has embarked on a multi decade development strategy to work toward greater food security, combat non communicable diseases and reduce crime, all the while increasing trade and reducing barriers to travel (CARICOM, 2012). Grenada has been instrumental in calling for the free movement of labor within the CARICOM nations and the removal of alien landholding taxes within CARICOM, which it sees as a mechanism to increase non domestic (but regional) investment, especially from Trinidad & Tobago, which is less than an hour away by air (Lord, 2013). In addition, the government of Grenada has been, since late 2005, exploring oil and gas collaboration with Trinidad & Tobago, resources which it has neither the infrastructure nor expertise to develop by its self (EC, 2013). Grenada Integration with foreign markets
Integration in Europe
The Grenadian economy interacts with the European Union thought a series of agreements stretching back 3 decades (EC, 2013). In 2008 an updated Economic Partnership Agreement (EPA) between the EU and CARIFORUM (a consortium of CARICOM and other central and South American nations) aimed to govern the trade of regional products with the goal of increasing food security and developing preferential treatment for products of CARIFORUM states, including Grenada. Specifically covered under the agreement are the trade of bananas, rum, rice and sugar at preferred rates (EU, 2008). Of these, rice is the only product not produced at any commercially viable scale in Grenada. Additionally, the agreement outlines support from the EU for emerging market development and has been instrumental in liberalizing tourism services (Section 7, article 110) (EU, 2008). Even in spite of these increased trade preferences, trade between the EU and Grenada has been on the decline since 2008, both in exports from Grenada to the EU and total trade value (EU, 2013).
Integration in the Americas
Of the export trade conducted by Grenada in 2009, 83.9% was directed towards countries in the Americas (WTO, 2010). More specifically, four countries in the American bought the majority of exports, Dominica (16.4%), the United States (16.3%), Saint Lucia (11.2%) and Barbados (9.4%) (WTO, 2010). The primary exports were agricultural goods (58.6%) and manufacturing (41.1%) which was comprised mainly of food and beverages, textiles and some light assembly (WTO, 2010). Grenada imports heavily from its American neighbors, especially the United States ($87 million USD in 2009) and Trinidad & Tobago ($70 million USD in 2009) (WTO, 2010) which contributes to its large global trade deficit.
Integration in Asia
The Grenadian economy has been dynamically tied to many Asian nations, primarily as a result of development loans taken out by the government and totaling in the tens of millions of US dollars (Wikinson, 2012). In a case of global political infighting, Taiwan, who loaned Grenada over 30 million US during the 1990’s for development work. Later (2005), the government of Grenada reversed its allegiance recognizing China’s assertion that Taiwan was breakoff colony in an effort to secure China funding for the development of a stadium for the world cup of cricket. Taiwan required repayment of the loan as retaliation and, given the economic condition of Grenada in the wake of hurricane Ivan, the county defaulted on its obligation. This resulted in additional economic impacts as Taiwan garnished fees, collected in the US, which the island of Grenada charged cruise ships to dock. These funds, a significant component of the Grenadian budget, have become very contentious and resulted in a host of legal battles (Wikinson, 2012). To further complicate issues, Grenada has been involved in a multiple donor request from China ($8.7 million in 2013) while owing large sums to the Export-Import Bank of China ($32 million) (Caribbean 360, 2013) (CNN, 2013). Of the countries in Asia, the only appreciable export market for 2008 was Japan with a goods value of $1.1 million USD (WTO, 2011).
Integration in the Middle East and Africa
Grenadian exports to the Middle East and Africa represent less than 1% of Grenada’s exports from 2002 to 2010 (WTO, 2011). One notable spike occurred in 2009, with 15.44% of exports going to the Middle East, comprised primarily of agricultural raw materials (WTO, 2011).
Foreign direct investment in Grenada, as measured by net inflows as a percentage of GDP, has seen a drop from the 20.49 % in 2007 to only 7.68% in 2010 (WTO, 2011). Current levels are near those of 1995, coinciding with the sharp constriction of foreign markets resulting from “The Global Great Recession”. A number of as of yet unaccounted for large foreign investments into the tourism industry (Sandals $100 million USD investment in LaSource) may result in a dynamic reversal of the investment trend seen up to 2010, however, given the speculative failure of two major developments in 2013 (Levera Beach and Mt. Hartman development), the net result may be a wash (Caribbeane 360, 2012) (Benjamin, 2013) (Ferguson, 2009).
Grenada has a number of World Trade Organization agreements which limit and restrict its ability to exercise tariffs. General import tariffs in Grenada are 11%, however there is great variability in the rates that are charged on items (WTO, 2001). The highest tariffs are on food items like vegetables (23.5%), nuts and melons (34.4%) and coffee (22.7%) (WTO, 2001). Relatively low tariffs exist for metals such as iron (5.5%), tin (5%) and copper (6%) as these raw materials are not readily available for mining on the island (WTO, 2001). Fertilizers (0.38%) and pharmaceutical products (2.48%) have some of the lowest tariffs on the island, reflecting their respective importance to agricultural production on the island and the heath of the population (WTO, 2001).
Grenada operates a number of quotas for imports, the most significant being the import quota on ozone depleting substances (NOUG, 2013). This agreement governs the import of hydrochlorofluorocarbons, key components of the refrigerant industry, which is highly active in the country due to its climate and latitudes. In addition, duty free exports of some commodities, such as bananas from Grenada to the United Kingdom, are governed by quotas (14,000 tonnes a year) (Lazare , Antoine , & Samuel, 2001).
Grenada currently has no embargos from other nations and does not embargo goods from any nations (WTO, 2011). In 2013, Grenadian politicians did call for the lifting of the US embargo on Cuba, displaying the complex relationship shared by the US-Grenada-Cuba, stemming from the 1983 invasion of the island which involved all three nations (Spiceislander, 2013).
Grenada has often invested in, and struggled with, subsidies for various industries. Perhaps one of the best documented programs is the long standing policy of the Grenadian government to subsidize portions of the fisheries industry. Research conducted by the Pew Charitable Trust has indicated that in the year 2000, Grenada was involved in a number of positive subsidies programs such as fisheries management ($196,000 USD) and maintenance of Marine Protected Areas (MPA’s, $106,000 USD) (The Fisheries Center, 2006). However, these positive subsidies (as defined by the authors and developing the resource) are far outstripped by purported harmful subsidies such as fishery development ($726,000 USD) and storage infrastructure ($139,000 USD) (The Fisheries Center, 2006). In addition to the fisheries, the government has long been known to give generous subsidies to the tourism industry, including holidays on import tax, specialized financing and direct investment (Johnrose, 2011). These subsidies are
Grenada is not activity involved in export financing as the government is under regular economic pressure as a developing economy. With the help of the International Trade Center (ITC), Grenada had developed a National Export Strategy (NES) in 2006, however, financing is primarily limited to the payment of salaries of in country support staff (Bagwhan logie, 2006).
Grenada participates in a number of foreign trade zones, chief among them CARICOM, the common market zone incorporating 15 Caribbean countries (Antigua & Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kits & Nevis, Saint Lucia, St. Vincent & The Grenadines, Suriname, and Trinidad & Tobago) (CARICOM, 2001). The single market economy afforded by CARICOM allows for member of each state to travel and trade between member states with little or no restrictions, similar to the European Union. Further, the trade zone has resulted in the establishment of the Caribbean Exchange Network (CXN), which facilities the public trading of company stock across some members of the trade zone (Collister, 2006). Specifically, the Eastern Caribbean countries (members of the Eastern Caribbean Central Bank), lacking significant size to support their own exchanges, have joined with larger economies such as Jamaica and Trinidad & Tobago, to create a more lucrative trading platform (Shridath Ramphal Center, 2010).
Prior to the 2004 agricultural destruction and resulting economic downturn attributed to hurricane Ivan, Grenada had a well-documented comparative advantage in the spice trade, specifically nutmeg (Boyes & Melvin, 2013). The island capitalized on this, billing its self as the “spice isle” for many years, a name it still retains, in spite of a sharp decline in the industry. Since 2005, spice production has dropped in Grenada, shifting primarily to lower cost producers in Southeast Asia (Boyes & Melvin, 2013). Grenada has been successful in becoming competitive in the wheat flour processing market, an interesting expansion given that wheat is not a major product of the island and thus is imported for processing and subsequent exportation (Schipke, Cebotari, & Thacker, 2013). Although the country is actively involved in the banana trade, it lacks comparative advantage in the production and as such suffers a reduced market share when compared to others in the Caribbean and Central American region (WTO, 2011). Recently (post 2004) a cottage industry has developed, having the potential to introduce a new comparative advantage industry. Focused on organic, Fair Trade and Transport, sustainably harvested and processed chocolate and coco production, it has taken hold in the North-Eastern corner of the island and received international awards (AOC, 2013). The potential expansion of this emerging market has yet to be seen but the current system and value added approach appears unique to Grenada.
Grenada has - since its establishment as a country (1974) - traded primarily under agreements established to favorably treat its exports at higher prices than the international free market (WTO, 2001). Even in light of this preferential treatment, Grenada has operated significant trade deficits throughout its history, resulting primarily from its industry mix (single crop agricultural) and constricted natural resource mix. From 1995 to 1999 Grenada experienced at least a 3 to 1 trade gap between its imports and exports (1999 imports of $202.7 million USD, exports of $54.5 million USD) (WTO, 2001). During that same time, Grenada primarily imported from the United States (41.8%) with Europe (13.1%) and neighboring Trinidad & Tobago (21.4%) representing a smaller portion of imports. Significantly, Europe represents a much larger portion of exports (42.1%) with Netherlands (19.8%) and Germany (11.1%) buying the lion share of goods from Grenada (WTO, 2001). Prior to the devastation of Hurricane Ivan in 2004, spices such as nutmeg (41.6%) and mace (5.2%) represented the major export products. Post hurricane Ivan, the European Union, one of the largest purchaser of Grenadian goods, has steadily decreased both imports and exports. In 2008, Grenada imported $30 million USD and exported $11 million USD to the EU. By 2012 those figures had dropped to $22 million USD in imports and $5.2 million USD for exports, resulting in a nearly 1/3 drop in total trade (EU, 2013). In 2010, the last year reliable figures global trade figures are available for Grenada, the largest export was fish (37%) with flavored water (14%) and processed wheat (12%) filling out the top 63% of total exports (IMTS, 2010).
The Purchasing Power Parity (PPP) - an economic equivalency tool for comparing gross domestic products between currencies and economies- of Grenada for 2012 was 1.471 billion U. S. Dollars, or $14,100 per capita (CIA, 2013).
Grenada has invested heavily in information technology with over 25% of its population having regular access to high speed internet through the East Caribbean Fiber Optic System (ECFS) (CIA, 2013). Additionally, the country has over 121,000 mobile phone users, far outstripping the actual population of 109,000 (Ministry of Finance and Planning, 2010). In many cases, individuals may have two or three cell phones used for multiple business purposes. Owing to the easy accessibility of high speed internet /telephony and the English speaking nature of the island, a number of call centers have expanded their operations on the island (Caribbean News Now!, 2013).
Although the general economy of Grenada is free market, a number of staple items are price controlled by the government, resulting in only predetermined markups being allowed. These include grocery items such as butter (7.5%), rice (7.5%) and chicken (12.5%) and a host of general items such cement (33.3%), drugs (5.0%) and nails (20.0%) (IMF, 1999). In addition, fuels such as gasoline, kerosene, diesel and liquid petroleum gas (all at 0.95% markup) experience similar government controlled price stabilization (IMF, 1999). From 2008 to 2013, the government of Grenada has become increasingly involved in the setting of gasoline prices, setting specific prices for fuel and essentially nationalizing the industry. As of June 2013 the cost for an imperial gallon of gasoline was $15.95 Eastern Caribbean Dollars ($5.81 USD) (GIDC, 2013). The impetus for such government intervention into pricing appears to be rooted in previous socialist/communist leanings (late 1970’s and early 1980’s) coupled with a fear of monopolistic control and exploitation by a small number of individuals/corporations (Steele, 2003).
Since the 1983 US led invasion, the economics of Grenada have been primarily a free market, structured on private investment in the tourism and vacation home market (GIDC, 2013). Limited agriculture production has been in the decline since the 1950’s and suffered near complete devastation from the back to back effects of hurricanes Ivan (2004) and Emily (2005) (GIDC, 2013). A number of call center service companies have attempted to establish additional service offerings in Grenada but the primary economic diver continues to be tourism (GIDC, 2013). The long term establishment of St. Georges University (founded 1976), a private international medical school, results in increased rents, traffic and business in the southwestern corner of the island and plays a vital role in the islands overall economy (Ministry of Finance and Planning, 2010).
The nation of Grenada has a number of long standing business and international trade agreements. Individual bilateral agreements between the US and the UK are well established and primarily act to protect US and UK investors (GIDC, 2013). Additionally, Grenada is a member of CARICOM (1973), a multi nation (14) free trade zone covering the Caribbean where goods are sold and traded (GIDC, 2013). CARICOM also has extension agreements with other equatorial governments including Cuba, Colombia, Venezuela and Costa Rica with varying levels of tariff reduction (GIDC, 2013).
The ethical business standing of Grenada has experienced a number of tumultuous events, however, these appear isolated to a handful of individuals (some of which were not Grenadian citizens) and thus not representative of the trustworthiness of the Grenadian people. Perhaps the best known scandal was a 2002 ponzi scheme where investors were bilked out of over $170,000,000 USD by a conman from Oregon named Gilbert Ziegler (Jaquiss, 2002). The scandal, which reportedly involved a number of government officials resulted from the regulation (or lack thereof) of off-shore banks (popular during the 1990’s) and tarnished the islands reputation for a number of years, requiring a 2004 review by World Bank of the Grenadian investment climate (FIAS, 2004). In 2012 a number of Grenadian government agencies, including the Royal Grenada Police Force, have taken efforts to reduce internal corruption which has been described as rife by outside observers (CNN, 2012).
Taxes in Grenada take on a number of forms including federal taxes, income taxes and import tariffs. Federal corporate taxes in Granada are generally charged at a rate of 30% on an annual basis (Hills, 2012). There are a number of capital investment allowances (machinery, computers, vehicles and plant equipment) provided by the Grenadian Ministry of Finance which range from 10% to 25% depending on the type of equipment and depreciation time tables (Hills, 2012). Grenada does not have a capital gains tax, however the transfer of property does incur a 5% property tax which is increased to 25% for foreign investment (10% to the local company or individual and 15% for the alien purchaser) (Hills, 2012). Prior to 2010, Grenada did not have a sales tax, however, since then a value added tax (VAT) of 15% has been put in place for all goods and services with the exception of hotels which are charged at a lower 10% rate. Additionally, telephony in Grenada is charged at a 20% VAT rate and the VAT is balanced between the costs of VAT paid vs owed, resulting in net calculations which can produced creditable months (Hills, 2012).
Personal income in Grenada is taxed only for individuals making more than $30K ECD ($10.71K USD) and then at a rate of 0.25% to the first $100K ECD ($35.70K USD) at which point the rate increases to 0.5%. Import tariffs to Grenada tend to be very high, ranging from 5 to 40% of the cost of the goods (Hills, 2012). This price is passed directly to the consumer and very few exemptions are given with the Grenada Customs & Excise Division acting as a semiautonomous tax clearing house (FIAS, 2004).
In an effort to encourage the development of tourism and manufacturing in Grenada the government offers full tax holidays for up to ten years in the case of the former and 15 years for the later. These holidays include no corporate profit tax and in a number of cases import tax exemptions or reductions (Hills, 2012).
Intellectual property in Grenada is governed by a series of laws including a number which predate the government’s formation in 1974 (World Intellectual Property Organzation, 2013). As a member of the United Kingdom, most trademarks protections are covered under the 1939 Registration of United Kingdom Trade Marks Act (Cap. 284) (World Intellectual Property Organzation, 2013). Additionally, Grenada is party to the United Kingdom Designs Protection Act and Patents Act (1928 and 1898 respectively) (World Intellectual Property Organzation, 2013). More recently, the government of Grenada has acted to reduce ill-gotten finances, similar to Ponzi schemes it experienced in the late 90’s, with the establishment of the Telecommunications act of 2000 and the Electronic Transaction Act of 2008 (World Intellectual Property Organzation, 2013).