Over the past six decades Barbados has grown from a low income economy dependent on agricultural sugar production, into a middle income economy based on tourism and offshore financial services. The per capita GDP is higher than in Poland, but not as high as in Portugal. Despite improvements in quality of life, the island still has high unemployment rates and persistent pockets of poverty.
Barbados Currency Has a Fixed Exchange Rate of Bd$2 to US$1
Tourism is Barbados's central economic activity and has been since the 1970s. About 14% of the working population (some 18,000 people) have been directly employed in this sector, which offers a range of tourist accommodations from global hotel brands to over 4,200 villas and apartments rented through platforms like Airbnb and VRBO.
Before the COVID-19 pandemic Barbados welcomed over 1.3 million visitors each year; about half of them were cruise ship passengers who stayed only for a single day while the other half stayed at hotels, apartments and villas for a little over ten days on average. The pandemic has had a devastating effect on the industry. The Inter-American Development Bank policy brief, Extreme Outlier: The Pandemic’s Unprecedented Shock to Tourism in Latin America and the Caribbean, predicts that our entire economy will suffer an “unprecedented shock” because tourism provides, directly and indirectly, 39% of our GDP and 39% of our employment. The collapse of the Barbados tourism sector will lead to a reduction of export earnings of between 16% and 25% and a slump in GDP of between 6% and 9%.
It is highly likely that the global tourism sector will take many years to recover because the global economy is entering a severe pandemic induced recession, many airlines are bankrupt or on the brink of bankruptcy, and lower load factors will oblige them to increase airfares.
The Barbados tourism sector will evolve to exploit the emerging opportunities exposed by the ways COVID-19 is changing global economies. One of the most profound social changes is that many millions of people, particularly technology professionals, in Europe and North America now work from home. The World Economic Forum estimates that by 2019 the number of tech professionals in the USA who could work from home had already grown to 16%; the pandemic has increased this to well over 90%, the majority of whom may return to their cubicles. So why should these recently untethered employees continue to suffer the bleak climate of Montreal or Chicago or Manchester when they can relocate to Barbados and continue to work from home?… just that now their home is a much nicer place to live.
The manufacturing sector in Barbados has had ups and downs since it formed a major plank of post independence economic development strategy. In the 1970s there were attempts to develop a manufacturing export sector focussed on textiles and electronics, but the evolving global economic and technological environment brought these efforts to an end in the late 1980s. Barbados is unable to compete with low wage jurisdictions in Asia for to be a textile industry hub, and the electronics sector withered after the global semiconductor company Intel closed its factory here in 1986 because they were building giant fab plants on too large a scale for Barbados to accommodate.
Most of the manufacturing activity that survives is aimed at the local market, producing goods such as packaged food, drinks, cigarettes and cement for local construction. The exceptions are traditional rum distilling which constitutes the lion’s share of manufactured exports, and some high tech specialised products such as the intraocular lenses produced by Lenstec.
The international business and financial services sector is an important contributor to the island’s economy. Over the past 30 years, successive Barbados governments have built an environment that attracts business by being a low tax jurisdiction. Barbados has enacted legislation that makes the country an effective domicile for:
- International Banks,
- International Business Companies,
- Exempt Insurance Companies,
- Qualifying Insurance Companies,
- International Societies with Restricted Liability,
- International Trusts, &
- Mutual Funds.
The island has also established a network of tax treaties with a range of countries that includes the USA, Canada, Britain, Switzerland and China. Barbados’s high quality international telecommunications links and frequent scheduled flights from Britain, Canada, Europe, and the United States make it a convenient location for international business.
Barbados has only modest fossil fuel resources in crude oil and natural gas. The crude oil is exported because the island lacks local refining capacity. The electricity supply is reliable, but expensive, since the vast majority of it is generated by burning imported fossil fuel. Solar water heaters for domestic use are widespread, and solar photovoltaic electricity production is growing rapidly. The government is aiming at generating all electric power from renewable sources by 2030.
For over three centuries the Barbados economy was dominated by sugarcane agriculture, but since the decline of that industry large areas of agricultural land are unproductive and much of our food supply is imported. We spend US$325 million per year importing about 90% of the food we eat, with US$88 million of this being spent on items such as lettuce and onions that can easily be grown here.
Successive governments have implemented policies aimed at boosting local production and improving food security. Most recently the Farmers Empowerment and Enfranchisement Drive (FEED) is aimed at poverty reduction as well as improved economies of scale in agricultural production through a precision farming model based on scientific knowledge and modern technology. This program aims to provide clusters of farmers with greenhouses, vertical farming facilities, several hundred acres of land and enhanced post-harvest transportation.
The fishing industry contributes important protein to the local diet. The majority of fish landed in Barbados are sold locally, but some species, particularly yellowfin tuna, are exported to the USA.