Failure to Invest

Simon Naitram

October 28, 2018

4 minute read

Barbados’ giant economic hole is entirely of our own making. Our distress stems from one fatal flaw: we do not invest.

Let me make it plain. Investment in new businesses, new technologies, and new ideas is the only way to generate sustainable economic growth. Economic growth is not just an economist’s foolish cravings. Economic growth is the only path to prosperity. Investment is needed for economic growth, and without economic growth, we perish.

Why is it that we don’t invest? What can we do to fix this fatal flaw?

The first problem is that we have failed to save. By the end of 2017, the country’s total savings stash was just 13.6% relative to our annual income.1 Even in 2007, Barbados’ gross savings were only 12.9% relative to income. At that time, the global average was 25.1%. This means our gross savings to income ratio was 179th out of 200 countries. Our savings are paltry in comparison to the investment hole we need to fill. We simply have not put aside enough money for our businesses to invest.

And yet, commercial banks don’t want our cash. They offer us a ridiculous 0.05% interest rate on our savings. Why? In 1990, the banks lent 68% of our savings to businesses. Lending to businesses is risky, but it is productive investment that generates high returns and grows the economy. In 2018, the banks have lent only 28% of our savings to businesses! Banks have stopped channeling our funds into productive economic activity—which is in fact their one job.

Commercial banks claim there are not enough attractive businesses to lend our money to. True or not, the result is an impoverished business sector. The size of business investment in Barbados is obscenely small. I have already highlighted the Government’s failure to invest. But even the Government of Barbados sparkles in comparison to Barbados’ business sector. Even in 2007, Barbados’ business capital stock was a mere 62% of the size of our government capital stock. The capital stock is the sum of all investment over time. Comparing the ratio of business investment to government investment, Barbados ranks 152nd out of 168 countries. Our businesses have not invested. As a result, our businesses are ugly, outdated, tired, and unable to compete globally.

What is the result of our failure to invest? A lack of investment means there’s no innovation. No innovation means no income growth. Barbados’ average income per person has not grown since 2008. From 2008 to 2017, Barbados’ average income shrank by 2.8%. Compare that to the period 1992 to 2007, during which Barbados’ national income literally doubled. Had we kept up that growth rate, national income would have been $45,000 per person in 2017. The stark reality is that national income was only $31,000 in 2017. We have lost out on a 43% increase in our incomes. Our failure to invest is the reason your salary hasn’t increased.

We do not save enough. We claim that we can’t save any more, and that the benefits of saving are too low. Banks do not invest productively. They claim that there aren’t enough good business ideas in Barbados. Businesses do not invest. They claim that it is impossible to get funding. Enough with the excuses.

We live in an outdated, inefficient, and unproductive society. We are poor, frustrated, and depressed. We have lost a decade of progress. Our collective failure to invest leaves us on the brink of being a failed nation. But great stories are written from the brink. The solutions are entirely achievable, but require immediate action.

  1. Individuals: We need to save more, but save smart. Search for financial institutions willing to invest your money in productive local businesses. If that doesn’t work, find a business and invest your money directly in it. The Barbados Stock Exchange is a good place to start. Search for higher returns that make your money work for you.
  2. Banks: You must take greater risks—lend to new and innovative businesses. Actively identify business opportunities. You are the main caretaker of Barbados’ money. Your actions decide our long-run prosperity. You have a responsibility to grow the economy through business lending.
  3. Businesses and entrepreneurs: You must invest! Take a risk. Quit your job. Expand your business. Start a new gig. Be creative. Explore the global market. Innovate. You are the heartbeat of the Barbados economy. You are the Barbados economy. Take our money!

Without risk, there is no reward. Without investment, there is no growth. Without growth, the people perish.

1 Thanks to a kind reader pointing out that the 13.6% savings was misleading. It is the total savings (total deposits) to income (gross national income) ratio rather than the savings rate (which is how much you save of this year’s income). Total deposits comes from the Central Bank of Barbados’ online data.

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