 The British economy accounts for 0.88% of the global population (around 65 million) but accounts for around US$2.7tn in GDP in 2014 or 3.7% of global GDP. Whilst the UK may not be a very large economy it plays an important part of the EU accounting for around 16% of EU GDP and by creating uncertainty in that market it will affect the global economy directly and indirectly in a pronounced way. The UK may also hold special relevance to some economies as a trade partner, especially those from the EU and some of those from the Caribbean especially the Dominican Republic.
CARICOM Performance
CARICOM economies as a whole has improved since the global financial crises and indeed the Table 1 below shows that as compared to 2010 all CARICOM economies by 2016 are forecasted to do better than they did in 2010 with the exception of the commodity exporters Belize, Guyana, Suriname and Trinidad and Tobago. Note though that Guyana, Belize and Suriname are still forecasted at positive growth in 2016, however, T&T is forecasted for negative economic growth.
A few areas in which Brexit can affect CARICOM are considered. On June 22, the exchange rate was US$1=0.7314 pounds. After Brexit, the British pound devalued to US$1=0.8994 pounds. This means that the cost of vacationing in the Caribbean by British nationals would have increased, especially to those economies with exchange rates on a fixed peg with the US$. This could likely lead to a decline in occupancy rates within the region. Affected economies would have to search for ways to reduce costs and to increase the amount of tourists they attract from the USA, China and other areas.
Another possible effect is that Foreign Direct Investment (FDI) flows from the UK to the Caribbean may fall. Some countries like Trinidad and Tobago received 13% of its total FDI in 2015 from the UK so the uncertainty of Brexit is likely to create a fall in FDI flows.
CARICOM has a sizable diaspora in the UK with migrants making up 0.01% of the population in 2016. Uncertainty and an expected contraction of the UK economy are likely to lead to a temporary dip in remittances. A dip in real economic activity in the UK can lead to a fall in remittance flow into the CARICOM region and for countries such as Jamaica and the USA that are heavily dependent on remittances in one way or the other. This will have to be monitored (Jamaica benefitted from US$292 million in remittances from the UK in 2015).
Guyana, Jamaica and Trinidad and Tobago are the main countries within the CARICOM sphere from which the UK imports. The decline of the pound sterling may lead to a decline in some of these imports by the UK from CARICOM but at the same time, CARICOM may now be able to source some goods from the UK, in the context of the depreciated currency, cheaper than from other economies.
Another effect of Brexit is that CARICOM may have lost its opportunity to use the UK as a gateway to the EU. The CARICOM may now need to build ties with another EU member state as its gateway into the EU.
The UK is not such a big player in the global economy so as to lead a sharp plunge in commodity prices exported by CARICOM. To use oil as an example, the price decreased from around US$49.34 per barrel to US$47.85 on June 29.
A probably positive might be that more skilled jobs become available to CARICOM nationals in the UK as they erect barriers and rules on the movement of EU members. More scholarships may come the way of the CARICOM in relation to EU students and the depreciated pound offers our CARICOM students improved financial access to the UK as a place to study.
In closing, it is noteworthy that CARICOM countries dependent on development assistance may find themselves in a compromised position. The future of Cariforum doesn’t seem clear. Even worst, Brexit comes at a time when the dynamic gains from the EU-Cariforum, seem to be swamping the static welfare loss of tariff revenues realized with the formation of EU-Cariforum agreement.
There is perhaps also the possibility that the EU may use this as an opportunity to move more in the direction of treating CARICOM as part of the Latin America and the Caribbean region.
Dr Roger Hosein is a Senior Lecturer in Economics at The UWI, St Augustine
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