Delayed project completion dates, cost overruns, and encumbered raw material sourcing are some of the direct impacts that senior economists and government officials expect to see on China-led public works in the Caribbean, due to the COVID-19 pandemic.
The pandemic, itself spawned in China but quickly engulfing most of the rest of the world, has also grounded global tourism, and decimated much-needed remittances to the Caribbean, economists Dr. Roger Hosein and Professor Nouriel Roubini said earlier this month. In an April 29 report, International Monetary Fund (IMF) economists concurred.
Together, tourism and remittances by Caribbean diaspora back to relatives here, are the region’s bread and butter, the economists suggested. Commodity-rich Caribbean nations like Trinidad and Tobago are less dependent on tourism and remittances, but the main market for their manufacturers are tourism-dependent Caribbean Community (Caricom) economies, as stated in a note to clients by Republic Bank Limited, the Caribbean’s largest asset-based bank.
Roubini, the economist who forecast the 2008 world economic crisis, now a University of New York (NYU) professor, said during an Inter-American Development Bank (IDB) call on April 21: “Tourism and remittances are going to disappear, so maybe oil prices are lower, but you’re not going to have tourism and remittances so you’re going to be hurting the Caribbean because of that.”
University of the West Indies (UWI) Senior Economics Lecturer Dr. Hosein said on April 24: “Another major avenue through which the Caribbean will be hit by the coronavirus next year is remittances, which will decline considerably. There is no way this can be a V-shaped recovery as indicated by the IMF. I simply cannot see that.” Economists call a dip in economic activity immediately followed by an immediate recovery a V-shaped recovery. Both Hosein and Roubini said, at best, the recovery will likely be U-shaped, meaning the recession will last a few years before recovery.
In the midst of all of this is the eroding pillar of Chinese development support through a variety of financing mechanisms inspired by its global ‘Belt and Road Initiative’. There was evidence spanning most of 2019 that Chinese largesse in the Latin American and Caribbean region had already been on a downward slope. Within the Caribbean Community (CARICOM), there were early warning signs as the pandemic extended its deadly arms across the seas.
COVID-19 severe costs to the Caribbean
IMF economists Krishna Srinivasan, Sònia Muñoz, and Varapat Chensavasdijai wrote in an April 29 report: “As the COVID-19 pandemic continues to spread across the globe, bringing severe human and economic costs, the Caribbean is no exception. With over 1,000 confirmed cases, many countries have taken strong containment measures, such as border closures and lockdowns, to flatten the curve. But the ‘sudden stop’ in tourism is sharply slowing economic activity in the Caribbean, and growth in the region is projected to contract by 6.2 percent in 2020. This would be the deepest recession in more than half a century.”
There are also possible spillovers to the financial system, they said, adding, “The upcoming hurricane season poses additional risks to these already budget-strapped economies.”
The economists said: “The Caribbean economies are being hit hard by the collapse of the tourism sector, which accounts for 50 to 90 per cent of gross domestic product (GDP) and employment in some countries.”
They said: “The global cruise line and air travel industries have ground to a halt with major cruise companies cancelling sailings through June and most airlines reducing or suspending service to the Caribbean region.”
The IMF economists said: “Key tourism source markets in North America and Europe are crippled by the pandemic. This, together with tight border controls and travel restrictions, has led to massive hotel booking cancellations and temporary resort closures, putting numerous people in the service sector out of work.
“Experience from previous crises suggests that the recovery could be delayed. There is also a risk that the ‘fear factor’ associated with the virus could have a long-lasting impact on tourism in the region, even after the pandemic recedes.”
They warned that the steep drop in commodity prices is affecting commodity exporters such as Guyana, Suriname, and Trinidad and Tobago through a loss in exports and fiscal revenues.
The economists said remittances average about 7 per cent of the Caribbean region’s output and exceed 15 per cent of GDP in Haiti and Jamaica. “With the United States, the United Kingdom, and Canada in deep recession, remittances flows to the region are expected to fall sharply,” they said.
Supply chain disruptions affect capital projects
“Given the region’s high reliance on imported goods, supply chain disruptions could affect capital projects by constraining arrivals of materials and labour, as well as jeopardize food and health security by delaying delivery of foodstuffs and medical equipment and supplies,” according to the IMF economists.
China’s ‘Belt and Road Initiative’ provided the framework through which more than half of Caricom entered into financing agreements with China for major public works. Despite requests from members of the public as stakeholders, requesting transparency of the contracts, there has been silence by regional governments.
“China’s ambitious Belt and Road plan is under threat because of the epidemic. In fact, the coronavirus may be the worst blow to the precarious economies of China, to the Far East, and beyond,” wrote L. Todd Wood in The National Interest, a publication of the Washington-based Center for the National Interest.
China lending differently
The Inter-American Dialogue’s Asia & Latin America program and the Global China Initiative at Boston University’s Global Development Policy Center (GDP) estimated that China’s policy banks, China Development Bank (CDB) and China Eximbank, issued roughly US$1.1 billion in loans to Latin America and Caribbean (LAC) governments and state-owned firms in 2019.
This means that the year 2019 was among the lowest on record for Chinese state-to-state financing in LAC.
“The low levels of Chinese policy bank lending last year are part of a broader, downward trend in Chinese finance to regional governments and state-owned enterprises, evident since 2015,” wrote authors Margaret Myers and Kevin P. Gallagher.
“China is no longer acting as a financial lifeline for the region’s more fragile economies. Venezuela, which accounted for 45 per cent of China’s overall lending to LAC since 2007, received no new loans from Chinese policy banks over the past three years.
“CDB and Eximbank are instead issuing loans to (a) wider range of actors but in generally smaller amounts. Argentina, the Dominican Republic, Suriname, and Trinidad (and) Tobago all received loans from Chinese policy banks in 2019,” Myers and Gallagher said.
According to their report, in 2019, China, through its Eximbank, loaned the Dominican Republic US$600 million for electricity generation; Suriname, US$200 million for its J.A. Pengel International Airport Expansion Project; and Trinidad and Tobago, US$104 million to build a new Phoenix Park Industrial Estate.
Myers and Gallagher added: “Another reason for the drop in sovereign lending is that CDB and Eximbank are in some cases providing financing directly to Chinese companies as opposed to LAC governments or state-owned enterprises (SOEs), especially in those countries that have rejected China’s model of state-to-state lending.”
Myers and Gallagher said: “Chinese state finance to LAC still differs in important ways from loans issued by traditional development finance institutions. CDB and Eximbank loans continue to focus on hard infrastructure and energy sector development. Chinese loans also refrain from imposing policy conditions on recipients but continue to promote the use of Chinese companies and/or equipment.”
They added: “Even if Chinese policy banks continue to lend to LAC at low levels, as they have over the past three years, the combined effect of Chinese policy bank activity, co-financing initiatives, commercial bank finance, and other forms of lending will ensure a sizable Chinese financial presence in the region for years to come, potentially in a wider variety of projects. But total combined Chinese finance to the region is unlikely to ever approximate policy bank peak lending.”
Fears that development projects in the Caribbean funded by China may be affected by the spread of COVID-19 were first openly expressed, at the highest Caribbean level, by Dominica Prime Minister Roosevelt Skerrit.
At a Caricom meeting of heads of government in Barbados on March 1, Skerrit said Dominica’s International Airport Construction project is among those likely to be halted. “We were supposed to receive a technical delegation from the government of China in the month of February. We had to put this on hold obviously and I am supposed to go to China in the next couple of months on an official visit and of course this is on hold,” he said. The signing of a US$300 million deal with Chinese company ASCG covering several projects, including the airport, dates back to 2013.
Trinidad and Tobago
Trinidad and Tobago Prime Minister Dr. Keith Rowley acknowledged the severe impact of the COVID-19 crisis on the economy, but stayed upbeat about China-led public works. Rowley said that while there has been a slight disruption to the supply chain of goods, it is too early to speak of delays with its China-funded mega-projects such as the Phoenix Park Industrial Estate.
Addressing the prospect of delays due to labour availability, Rowley said that while China-financed public works employ imported Chinese labour, most of those labourers who are employed on these projects were already living in Trinidad and Tobago at the time of the national lockdown, and were therefore unaffected by COVID-19 travel restrictions.
While generally echoing the sentiments of his boss, Trinidad and Tobago Health Minister Terrence Deyalsingh said one China-led project under the Health Ministry could possibly be affected. He said the Health Ministry is putting contingency plans in place to deal with any disruptions to the construction of the central block of the Port-of-Spain hospital, which was supposed to be China-led.
Contacted on the same issue, Works and Transport Minister Rohan Sinanan sang the same tune as the choir. He said the Curepe Interchange was the only China-led project under his ministry that suffered a delay, and it was for two weeks.
Rowley was not concerned about China’s willingness to still fund its projects in Trinidad and Tobago, despite its own troubles. He said: “There’s no question of the funding drying up at this time. The Chinese are still very flush with cash.”
A major element of the Belt and Road Initiative is the issuance of contracts to companies such as the China Harbour Engineering Company (CHEC) in Jamaica that was responsible for the construction of the North-South Highway.
In a statement earlier this year, CHEC Jamaica Country Manager, Dangran Bi said the company’s current projects, which include the long-awaited Southern Coastal Highway Improvement Project, are in advance stages of preparation and will begin on schedule despite that country’s travel ban.
“As a company, we are definitely watching with great seriousness the developments surrounding the Coronavirus outbreak currently affecting sections of China. However, it is important to note that this outbreak and the travel restrictions have not and will not negatively affect our current and upcoming projects as we already have the staff complement here in Jamaica to be able to operate at full capacity,” Bi said.
This year, the CHEC Jamaica also scheduled the construction of over 1600 homes at Catherine Estates, the Morant Bay Urban Development Centre and the Kingston Freeport Logistics Hub. However, in a telephone interview on March 25, CHEC Jamaica Public Relations Officer Kemisha Anderson said all those projects have since been halted due to the Jamaican government’s efforts to reduce the local spread of COVID-19 by stopping non-essential works.
Economists also raised concerns about whether China will, like Rowley believes, keep its financial commitments. IDB economists in the Caribbean Quarterly Bulletin cast doubt on whether the world’s largest economies, like China, would keep up their levels of foreign direct investment (FDI), given that they have been themselves thrust into a global recession.
“Foreign direct investment (FDI) could decline, as key source markets such as China and the United States could face economic downturns of their own following the surge of (COVID-19) cases in those countries,” said IDB economist Laura Giles Álvarez. She was speaking specifically about The Bahamas where Chinese FDI is a cornerstone of The Bahamas tourism sector.
Other IDB economists focused on the evolving economic and human consequences of the ongoing COVID-19 outbreak for countries in the Caribbean region. IDB economists Henry Mooney, David Rosenblatt, and María Alejandra Zegarra wrote in their COVID-19 special report on the Caribbean: “Lives are at stake, but that said, so are livelihoods. As a result, it is important to try to understand the economic forces at work in order to think through appropriate policy responses.”
What remains unclear is how governments in the region will respond if funding by China falls off. Whether or not there are any consequences for such a downturn is also hazy since contract details remain largely unknown, even by past and current senior government officials.