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Caribbean Islands-Sectoral Performance

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By 1987 Barbados had a diversified economy, with numerous sectors contributing to GDP. Leading sectors of the economy in 1985, as measured by percentage of GDP, included wholesale and retail trade (20.4 percent), business and general services (16 percent), government services (14.2 percent), and tourism (9.5 percent). Contributions of productive sectors (those with tangible output) included manufacturing (10.5 percent), agriculture (7.2 percent), and construction (5.3 percent).

Barbados' primary productive sectors were agriculture, tourism, and manufacturing. Agriculture, including the fishing industry, still played an important role in the development of the economy. In the late 1980s, agricultural planners were attempting to diversify the sector. The long-term decline in sugar production was the natural result of increased production costs combined with depressed world prices. In its stead, planners emphasized nonsugar agricultural products in order to reduce food imports and free up valuable foreign exchange for the purchase of capital goods and technology needed for economic development. Agricultural diversification, as outlined in the 1983-88 five-year development plan, also contributed marginally to reducing the unemployment rate and provided much of the society's nutritional base.

New markets in the Caribbean Community and Common Market (Caricom--see Appendix C) for fresh vegetables, flowers, and cotton allowed Barbados to increase foreign exchange earnings from agriculture. Improved output of fish, peanuts, and onions also improved its foreign exchange position by lowering agricultural imports. Figures for 1985 suggested that the 1983-88 development plan had succeeded in meeting diversification and production goals.

Agriculture, as a percentage of GDP, actually rose by 6 percent in 1985, representing increases in both sugar and nonsugar products. Sugar production rose by 20 percent in nominal terms, whereas food crops and fishing increased 11.3 percent. Unusually high growth rates occurred in cotton production, which rose by 400 percent. Food crops, however, experienced mixed production levels. These were decreases in the amounts of cabbage, carrots, peas, tomatoes, and corn produced and increases in peanuts, onions, beets, eggplant, pumpkin, broccoli, and okra.

In spite of distinct successes in agricultural diversification and production efforts, the sector had numerous problems to overcome. Sugar production remained unprofitable and required financial support through government subsidies. Analysts noted that in 1985 nonsugar agriculture had experienced production problems such as erosion, erratic rainfall patterns, and poor disease control. Marketing constraints, such as poor management, were also identified, as was inadequate coordination with external markets.

Output from the fishing industry declined by 32 percent in 1985 compared with the previous year, in spite of a marginal increase in the number of fishing vessels. This was accounted for by a combination of bad weather and imprecise reporting by fishermen to avoid paying tariffs. Government efforts to improve the fishing sector continued, however, as was evidenced by port improvements and financial assistance provided for boat purchases.

By 1985 tourism had become Barbados' primary foreign exchange earner. It accounted for 9.5 percent of GDP and was the leading sector in providing employment. Additionally, tourism had developed better economic linkages with the agricultural and industrial sectors, providing a market for locally produced foods and handicrafts. Production of fresh fruit and vegetables, fish, meat, and poultry all benefited from the tourist trade, as did handicrafts. Approximately 90 percent of all handmade goods were sold to visitors. Production of local goods sold to tourists, however, lagged behind demand, forcing Barbados to import 70 percent of all handicrafts sold to visitors in 1983.

Barbados was an early entrant into the Caribbean tourist market and enjoyed above-average earnings because of early development of its international airport. However, the change in market conditions in the 1980s eroded Barbados' dominant position, forcing it to consolidate gains rather than to continue to increase its share of the regional tourist market.

The worldwide recession of the early 1980s caused Caribbean tourism to lose ground. As the recession subsided, Barbados found itself in an increasingly competitive environment with other small island economies, particularly Grenada and St. Lucia. Both countries had emerged as significant tourist attractions, largely because of improved airport facilities.

The Barbadian government expected competition in the Caribbean tourist market to increase through the 1980s. In order to protect its share of the market, Barbados planned to address internal problems that had impeded growth of the tourist sector. Refurbishing of tourist facilities was essential if the island was to compete with the amenities available on other islands. The government also planned to develop a coordinated marketing plan to attract a greater share of United States business, as well as to dispel impressions that Barbados was expensive and less service oriented than neighboring islands. Analysts suggested that Barbados implement better management and financial controls.

Manufacturing, the third major productive sector, began to grow significantly following the creation of the government-run Barbados Industrial Development Corporation (BIDC) in 1957. The BIDC produced a long-term plan to enhance Barbados' manufacturing capability by taking advantage of low-cost labor, concessionary fiscal policies, foreign capital, a solid physical infrastructure, and political stability.

The manufacturing sector produced for both domestic and foreign markets. Primary manufactured products for domestic and external consumption included processed foods, clothing, beverages, chemical products, and tobacco, all of which required foreign capital and raw materials as primary inputs. Goods produced solely for export included handicrafts, which were produced exclusively from local raw materials, and electronic components and sportswear, which were developed through multinational enterprises and relied completely on foreign materials and capital.

Manufacturing had become a significant sector of the economy by 1985. As of this date, there were over 200 small-scale firms that contributed to 10.5 percent of GDP and 13 percent of employment. In spite of this established presence, manufacturing had generally not performed up to expectations. Its contribution to economic growth and employment had not expanded significantly in the previous twenty-five years. In 1960 manufacturing accounted for 8 percent of GDP, only 2.5 percentage points below the 1985 level. The sector's contribution to employment had grown at a similarly small rate during this same period, leading some analysts to conclude that other sectors of the economy had done more for aggregate economic growth and employment than manufacturing.

Manufacturing's greatest contribution to the economy appeared to be its ability to earn foreign exchange. In 1983 electronic assembly accounted for over half of Barbados' total domestic exports. Nevertheless, heavy reliance on foreign raw materials and global competition continued to hinder the island's ability to contribute to economic growth.

In 1985 output of the manufacturing sector declined by 9.5 percent as a result of changing world market conditions. Demand for Barbados' leading export--electronic components--fell sharply as the world market became inundated with Japanese semiconductors and resistors. Furthermore, regional competition was expected to continue to restrict this sector's ability to grow so that it would probably contribute no more than 10 to 15 percent of GDP in the near future.

Barbados also began producing oil and natural gas in the 1980s; it had 3.6 million barrels of proven oil reserves and 400 million cubic meters of natural gas in 1985. Although neither oil nor gas was extracted in sufficient quantities to export, Barbados was able to produce over half of its crude oil requirements by 1984, dramatically reducing its oil import bill. Natural gas was used as a direct energy source and in the production of electricity; however, 75 percent of all natural gas was flared at the wellhead. Construction of a small liquefied petroleum gas plant was expected to be completed in late 1987; the plant would improve utilization of excess natural gas.

Data as of November 1987

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