Curaçao’s Economic Resurgence
Minister of Economic Development, Dr. Steven Martina
As the year 2021 dawns, nations throughout the world are collectively assessing the economic damage caused by the ongoing COVID-19 pandemic. The infamous year 2020 has indeed caught us all off guard and served us a figurative ‘punch in the gut.’
At the beginning of 2020, prior to the emergence of this global pandemic, Curaçao found itself perched precariously on the edge of a fiscal cliff. We were on the verge of seeing several meticulously planned economic strategies come to fruition, and the outlook for the economy at the beginning of the year was positive. Projections indicated that we would successfully overcome many of the challenges that the island had faced from 2017 – 2019 and would be able to avert the impending economic downfall. However, history threw us a curveball and by the end of the first quarter of 2020, we found ourselves in uncharted waters, with an immediate call-to-action to re-strategize our Economic Development Plan in order to minimalize the impending economic disaster as a result of the global pandemic.
The first question is, “How do we survive?” But the next big question is, as Dr. Steven Martina, Minister of Economic Development, succinctly put it, “How do we recover?”
Immediate Survival and Eventual Recovery
The new Economic Development Plan can be looked at in the form of 2 simultaneously executed strategies. One addresses the immediate need for survival with a focus on Bankruptcy Avoidance for many local business entities that are currently facing unsurmountable challenges, while the other looks toward a medium and long-term path to recovery with Sustainable Economic Development and GDP growth over the following 5 to 7 years.
A Business Emergency Fund, referred to as the ALIVIO Package, has already been implemented and is swiftly providing much-needed relief to many business owners. Its goal is to provide immediate financial assistance to Small and Medium-sized Enterprises (SME’s), to ensure their survival and eventual recovery through until the end of the COVID-19 crisis.
TBZO - The TBZO (Tijdelijke Bijstand Zelfstandige Ondernemers) program has already spent over 15.0 million, providing financial assistance to over 3051 business applicants. Its timely assistance has successfully rescued many entrepreneurs and is gradually seeing a decrease in monthly applications. The program is committed to providing assistance through until the end of the COVID-19 pandemic.
NOW - The NOW (Nood Maatregel Overbrugging Werkgelegenheid) program subsidizes up to 60% of employee’s salaries for SME’s in an effort to retain employment numbers during the pandemic. It has already provided 80.0 million to 18,843 employees within 1327 local companies and successfully averted an impending unemployment crisis. The positive effects of this program have already begun to materialize, as we have observed a decrease in monthly applications signifying a slow and gradual start to economic recovery.
Credit Facility for SME’s - The development financing entities, Qredits, Korpodeko and Obna, have activated a credit program to assist SME’s in their continuity. This program has already provided over Naf. 1.0 Million in business loans to over 400 applicants and will continue this lending program through until the end of the global health crisis.
Ease on Loan Repayments – Private financial institutions have also extended an ease on loan repayments, including temporary grace periods for principal and interest payments.
Small Business Coaching Program - Since June of 2020, the Ministry of Economic Development has provided professional guidance and coaching to small business entrepreneurs, with over 253 small companies taking part in the program resulting in the creation of 369 coaching trajectories from over 100 business coaches.
SME Training Program - Since July of 2020, over 800 employees and business owners have participated in training programs to assist in the survival and recovery of their business enterprises. To date, these programs have effectively changed the course of an impending economic collapse and will continue to provide that much-needed lifeline to the most vulnerable sector of the business community until the end of the COVID-19 pandemic.
Sustainable Economic Development
The Road Ahead
As important as it is to attend to the urgent needs of the business community, this is merely a strategy of immediate survival and provides no outlook for Curaçao’s long-term economic recovery. The road ahead has in fact been forced to change its course in many ways because of the unprojected economic damage due to this health crisis. While many development projects already underway will continue their plans, albeit on a somewhat altered timeline, there has been a renewed focus on ways in which Curaçao can position itself in a more diversified and sustainable manner in the future. This has brought to light several key initiatives that promise to inject a far more substantial stimulus to the economy. Through the facilitation of the recent fiscal and economic relief accord with the Netherlands, a number of key development projects will now be realized in the near future.
Step 1: Assess
In order to further inspect these key strategies, one must first assess the position we find ourselves in presently. An analysis, if you will, of “Where we are today?”
When initially presented with an economic outlook back in 2015, all indicators pointed in the direction of a financial downfall by the year 2020 if corrective measures were not taken. With a significant amount of debt maturity; the expiration of several key tax legislations; and the expiration of the lease contract with the refinery, all expected to take place in 2020, it was projected that Curaçao would find itself standing at the edge of a fiscal cliff by the end of that year if nothing was done to change the economic status quo.
With the current administration taking office in June, 2017, the reality of the situation revealed itself to be far worse than initially predicted. In addition to the aforementioned obstacles there was: the crisis in Venezuela; a completely non-operational refinery; the bankruptcy of several significant business entities; the collapse of the Giro Bank and an enormous public debt for 2017, that forced several crippling measures to be taken in order to satisfy the requirement of a balanced budget. Together, all of these factors amounted to the perfect storm.
Rolling up their sleeves and immediately getting down to work, the government quickly installed an economic recovery plan, which when implemented over the course of 2018 and 2019 was successfully able to change the future direction of the Debt-to-GDP ratio, thereby stimulating GDP growth and employment.
Their hard-earned efforts were about to come to fruition by the beginning of 2020, with a positive economic outlook and projected budget surplus of 24.5 million for the year. In fact, public finances had stabilized, Curaçao’s OECD compliance rating had elevated to ‘Largely Compliant’ status, and the tourism industry was thriving.
However, by the end of February 2020, as the rapid spread of the Coronavirus swept across the globe, this trajectory took a nose-dive. With tourism coming to a sudden and complete standstill, and the collapse of the agreement for the takeover of the refinery, the revised budget deficit was now projected to resume its negative status and reach an all-time low of over -800 million for 2020.
Shifting gears into survival mode, the ensuing strategy was one of damage control and the preservation of people’s lives. After the public health concerns were stabilized and immediate financial relief programs installed, the government was then able to focus on recovery plans for the remainder of the year and through till mid 2021.
As the island gradually re-opened its borders, we were able to market ourselves as a ‘safe vacation destination’ and the tourism market is seeing a slow and steady recovery. In addition, several cost-cutting measures were implemented including: a 12.5% reduction in employee benefits for public and semi-public entities; a 25% reduction in benefits for Government Ministers and Members of Parliament; and an aggressive cost reduction in the Government budget and others. After successfully achieving a transitory level of economic stability, the next step is to implement medium and long-term strategies in order to stimulate Sustainable Economic Development for a newly revised road to recovery.
Step 2: Aspire
The focus was then shifted towards the island’s aspirations and asked the question, “Where do we want to be?”
The resounding answer was, “To become a nation with a vibrant, innovative and sustainable economy, recognized globally as a premier place to live, learn, play, work and do business.” In essence, to iconify Curaçao as connected, sustainable, hospitable and innovative. With the ultimate goal being to provide meaningful employment for the population, an ambitious target was set to not only prevent job loss, but to create 15,000 new jobs in the period leading up to 2026.
Step 3: Architect
The next step was to clearly define strategies and development plans that would facilitate this goal. As architects of Curaçao’s economic future, we needed to provide answers to the question, “How do we get there?”
Inspired by the expressions of the Noble Prize-winning Economist, Paul Krugman (New York Times, August 6th , 2020), the Prime Minister of the Netherlands, Mr. Mark Rutte (August 14th , 2020) and the IMF Economic Outlook for Curaçao and St. Maarten, (June 19th , 2020), Dr. Steven Martina, Minister of Economic Development asserts, “Now is not the time for fiscal austerity, slashing government spending in an attempt to balance the budget. [To avoid depression], now is the time for government to fill the financing gap with financing in the short term, while taking strong action to launch medium-term reforms and stimulus.” As such, a framework was created that would lead to Sustainable Economic Development. This framework was divided into the following three development categories or building blocks: 1. Sector and Area Development, 2. Export Development and 3. Enablers for Development.
1. Sector and Area Development
The first building block in the framework for economic recovery, is to further develop promising sectors to promote a diversified economy. Through a means of both public and private investments, 10 key sectors of the economy will be targeted for investment due to their significant growth potential. The identified sectors are as follows:
2) Financial Services
3) Renewable Energy
4) Science ,Technology and Innovation
5) Logistics (Airport & Maritime)
6) Trade Distribution and Export
8) Cultural and Creative Arts
9) Transnational Education
10) Agriculture (Livestock and Fisheries)
Within these sectors, several areas on the island have been proposed for development. Some of these plans were already underway prior to 2020, while others have been more recently proposed. They include:
RIF & Corredor - Encompassing the construction of the Marriott Courtyard Hotel, Corendon Hotel (partially completed), and the cleanup and future protection of the mangroves along that coastline integrated with public recreational spaces.
Zakitó – Encompassing the construction of luxury condominiums to expand the Royal Palm Resort and the installation of a marina at the Zakitó lake, and the deconstruction of the Aqualectra electricity and water plant and subsequent development of that area.
Bullenbay – Including plans for industrial water waste treatment, agriculture, installation of an LNG terminal, expansion of the existing oil terminal and storage tanks, bulk transshipment, service facilities and a mooring location. These ambitious projects will be managed by several state-owned enterprises, (i.e. CPA, RDK, CDMH, CUROIL and AQUALECTRA) in collaboration with the Port Authority of Rotterdam.
Santa Martha – Private investment plans for the development of a luxury resort and marina, with special attention to environmental sustainability and protection of the wildlife and nature within the area.
Downtown – The entire downtown area including both Punda and Otrobanda has been informally divided into 10 zones under the ‘Invest Willemstad’ initiative. This project is in an effort to further develop the city to be able to offer a multi-faceted district with many business, residential, cultural and recreational options, while still respecting Willemstad’s historical integrity. Several key projects are already underway, including the Luxury Condominium Project at the Motetwerf, the Marichi Hotel, the Plaza Hotel and The Pen Resort.
Other areas for development which are proposed for commencement or continuation are: Caracas Bay, San Juan, Casa Abao, Jeremi, Sint Nicolas, and East Point, among others. Altogether these projects are expected to ignite further vision and masterplans for future development.
2. Export Development
A national export strategy has been created with a strategic trade development roadmap to carry us through to the year 2025. This second building block features technology at the core, with plans to further develop tourism, creative industries, financial services, port & maritime services, ICT services and educational services. Through the investment in technology within these sectors, the intention is to increase trade facilitation and trade information, promote trade & investment and increase labor-skills and entrepreneurship. Several sectors are regarded as key contributors to foreign exchange income, (including tourism, international financial services, bunkering, refining, transportation and merchandise trade both within and without the Freezone) and will be focused on accordingly.
3. Enablers for Development
The third building block for the framework for economic recovery focuses on several structural economic reforms, and key changes to certain macro-economic policies and economic development policies, all of which will redirect the economy of Curaçao towards a path of greater efficiency, efficacy and prosperity.
These structural reforms fall under the realm of fiscal reforms, social security reforms, changes within the labor market and health sector, immigration policy and permit process reforms among others.
Most significantly, the core enabler expected to unleash Curaçao’s economic potential is facilitated by the INVEST CURAÇAO program. As part of the agreement recently signed with the Netherlands, there is a subset of various instruments including, guarantees on debt financing, guarantees on equity financing, big ticket financing, financing for innovation and early-stage financing, amongst others. These instruments will be initiated and granted in an effort to re-direct the economy.
With this fiscal insertion, put together with the aforementioned structural and policy reforms, both governments will collaborate to create a more attractive environment for foreign and local investors. With an increased investor confidence in the economy it will in turn stimulate further activity throughout all tiers of the economy, ultimately creating meaningful employment for all. Several key funds have emerged as a result of negotiations, including the Emergency Fund, the Economic Recovery Fund and the Public Investment Fund.
Emergency Fund - This fund is already up-and-running. It serves to provide immediate financial aid to the sectors of the economy that are hardest hit by the effects of the global pandemic. This includes crucial payroll subsidies (NOW Fund), and income support for the self-employed (TBZO Fund). The duration of this Emergency Fund has been secured through until the end of the COVID-19 crisis.
Economic Recovery Fund - In an effort to increase confidence in the minds of investors, this fund serves to provide a guarantee on debt financing as well as a guarantee on equity financing, with an added multiplier as a key bonus. Other instruments include big ticket financing, financing for innovation and early-stage financing.
Public Investment Fund - Traditionally, the Curaçao government was able to invest approximately 60 million per year on infrastructure. With the additional funds allocated by the government of the Netherlands, we will now be in a position to invest 100 million per year in various infrastructural projects that will serve to support both existing and future private investments. In effect, the INVEST CURAÇAO program will serve to create a fast-track to economic stimulation.
To date, in terms of business retention, over 400 million in financial requests from business owners to financial institutions, and a further 700 million in business development requests for financial institutions, have been put on hold due to the increased risk of the unstable economy. This fund will serve to unleash the impasse that investors and financial institutions are currently facing, and to regain economic momentum.
In addition to the above structural reforms, specific changes and amendments will be made to various monetary and fiscal policies in a deliberate effort to change the current course of the local economy and to expedite economic growth.
Economic Development Policies
Various development policies will also be enhanced for certain sectors of the economy including SME’s, cooperatives, energy, innovation, entrepreneurship and the areas of science, technology and innovation in an effort to both create and sustain existing jobs.
There should also be a focus on workforce development to prepare the local workforce for the anticipated job opportunities. Targeted training within the various growth sectors will serve to ensure that labor supply and demand needs will be satisfied as economic growth progresses.
In summation, the three building blocks identified within this economic development framework are the cornerstones for long-term Sustainable Economic Development. Firstly, with the implementation of purposeful strategies that target development within specific sectors and areas of the economy (i.e. 1. Sector and Area Development); secondly, with initiatives that foster growth within the export arena (i.e. 2. Export Development); and thirdly, with the identified structural reforms and policy amendments that will serve to enable foreign and local investment (i.e. 3. Enablers for Development), we will equip ourselves with the tools to achieve our long-term objective to create: MORE JOBS… BETTER JOBS…and BETTER LIVES.
Step 4: Act and Advance
This Sustainable Economic Development plan has set forth some ambitious goals without forgoing the immediate needs for financial survival that we currently face. With a 5 to 7-year plan to retain existing jobs and create an additional 15,000 jobs; an investment goal of 1,500 million in private investments and 500 million in public investments; and a target to increase exports by 10%, the road to economic recovery has been laid out clearly.
We have the building blocks necessary to ‘correct our course’ and avert impending economic disaster, and the fiscal tools needed to see this development plan through to the end of its construction phase. We are well equipped to stand at the end of this road to recovery with affirmative answers to the question, “Have we arrived?” And more importantly, the realization of this economic recovery plan will present us with a strategic vantage point that carries a clear-cut vision and subsequent action-plans for further advancement in the future. We will be guided by our focus to meet the needs of the present, without compromising the ability of future generations to meet their needs.