Facilitating Investment in Antigua and Barbuda

1
Facilitating Investment in Antigua and Barbuda

• Domestic policies to unlock global opportunities
  in the tourism sector
• Corthwright Marshall
• Ministry of Tourism Civil Aviation

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Introduction
Foreign direct investment in Antigua and Barbuda
has declined from the 1980s to the early part of
the 21st century. According to IMF International
Finance Statistics, during the 1980s, the FDI to
GDP ratio reached a little more than 10 percent
more than 5 percent in the 1990s and 5.1 percent
in 2000-2002. But, one must take into account
that the challenge is not only to attract FDI,
but to use the investment efficiently and towards
developing other productive sectors. Attracting
private investment will require an improved
investment climate with better government
promotion and facilitation services, less
government red tape, generally higher quality
service, a more attractive set of investment
incentives and a better investment law.
Conceptually, the government can provide all of
these. Antigua and Barbuda strengths and
weaknesses analysis of international trade
competitiveness. (USAID January 13, 2006)

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Travel and tourism

• travel and tourism industry is the worlds
  fastest growing industry and the worlds largest
  employer
• tourism is the most important economic activity
  in Antigua and Barbuda
• - employing an estimated 40 percent
  of the workforce
• - accounts for 85 of foreign exchange
  earnings and 70 of GDP
• - responsible for 52 of total investments

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Tourism global market place

• the global market place is extremely competitive
  and Antigua and Barbudas market share is very
  small
• globalization makes it increasingly important to
  get the investment
• climate right

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Gross Investment across Caricom- 1985 - 2003
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Tourism FDI inflows, 1998 - 2002
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GDP growth and Gross Investment-to-GDP Ratios,
1995-2004
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FDI to GDP Ratios, 1980-2002
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Investment and Growth, 1990-2003
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Investment trends in the Caribbean
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What is the investment climate?

• the policy, institutional, and behavioral
  environment, both present and expected, that
  influences the returns and risks associated with
  investment (Stern 2002)
• three broad sets of factors that make up the
  investment climate include
• macro fundamentals macroeconomic stability,
  economic openness, competitive markets, social
  and political stability
• governance and institutionstransparency and
  efficiency in regulation, taxation, and the legal
  system a strong and well-functioning financial
  sector labor market flexibility a skilled labor
  force
• infrastructuretransportation (roads and
  ports), telecommunications, power and water
  supply

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Investment climate
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Tourism investment climate
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Ratings of the Investment Climate in the Caribbean
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Facilitative environment role
of the Government

• the role of Government is to create the enabling
  environment that establishes an attractive
  climate for investment
• this relates to all aspects of doing business,
  ranging from regulations governing the
  establishment of companies to the ease with which
  profits can be repatriated

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Tourism related legislation

• Hotels Aid Act
• Income Tax Act
• Income Tax Amendment Act 2003
• Cricket World Cup Projects (Incentives) Act 2005
• Additional Incentives

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Hotels Aid Act

• grants exemption from customs duties on all
  imports of building materials, machinery,
  equipment, and furniture for the construction or
  extension of hotels. An extension usually has to
  be a minimum of ten rooms to qualify
• Drawback on the purchase of goods in Antigua and
  Barbuda or the exportation of building materials
  and articles of hotel equipment

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Income Tax Act

• grants a tax holiday of five years to a hotel
• additional right to write off against subsequent
  profits 20 percent per annum of the capital cost
  of the hotel over any five of the eight years
  following the tax-holiday period

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Income Tax Amendment Act

• license pursuant to Hotels Aid Act
• exemption from payment of corporate income tax
• Construction of new hotel
• minimum of 100 bedrooms 25 years
• extension of existing hotel
• 30 49 bedrooms 7 years
• 50 99 bedrooms 15 years
• 100 or more bedrooms - 25 years
• exemption takes effect from the year of
  assessment next to the year in which the
  completion or extension of the hotel is reported,
  in writing, to the Commissioner

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Cricket World Cup Projects (Incentives) Act
2005

• a corporate income tax holiday for a time period
  based on the number of rooms for the event
• relief on stamp duties, property taxes and
  non-citizen landholding licensing fees based on
  the total number of rooms for the event
• a percentage tax credit for financial
  institutions based on the amount of investment
• waiver of customs duty and consumption tax on the
  imports of building materials, equipment,
  appliances, and vehicles used for the event
• the right to repatriate all capital royalties,
  dividends and profit free of all taxes

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Cricket World Cup Projects (Incentives) Act
2005

• 72 new projects
• approximately EC203 million
• majority locally owned
• over 1000 rooms

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Additional incentives

• a guaranteed number of work permits are provided
  for foreign nationals
• acquire real estate property, subject to the
  acquisition of a license, as set out in the
  Non-Citizens Land Holding Regulations Act
• exemption from withholding taxes on interest
  payments
• ready repatriation of capital and profits
• trade bloc memberships include Caricom, Lome
  Convention, CBI, and EU-Caribbean Economic
  Partnership Agreement

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Investment climate Key factors for investors -
strengths

• governments positive attitude and willingness to
  grant incentives
• general location of the country, with extended
  coastlines and safe harbours
• natural harbors have the potential to attract
  high-end tourism in yachting 

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Investment climate Key factors for investors -
strengths

• positive attitude of local persons and businesses
• stable, democratic government
• stable and strong regional currency
• good international communications
• proximity to the U.S.A

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Investment climate Key factors for investors -
strengths

• well established local and foreign private sector
• competitive with other countries world wide
• national language (English)
• Antigua and Barbuda is a brand name known in
  tourism around the world

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Investment climate Key factors for investors -
strengths

• a good pool of skilled financial and managerial
  professionals
• educated and reliable workforce
• government-private sector dialogue
• No significant barriers to trade in tourism
  services
• Designation under the CBI, Canadas Caricom
  Program, EU EAP, etc.

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Investment climate Key factors for investors -
opportunities

• cultural and heritage tourism
• marine and cruise tourism
• Accommodation sector
• cuisine tourism
• agro-tourism

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Investment climate Key factors for investors -
opportunities

• medical tourism
• sports tourism
• religious tourism
• artifacts and handicraft production
• other tourism related services

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Investment climate Key factors for investors -
weaknesses

• weak physical infrastructure
• high costs of doing business
• Absence of land use policy
• Government red tape
• Customs and trade regulations

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Investment climate Key factors for investors -
threats

• crime and insecurity
• increasing competition from destinations offering
  better value for money
• -Cuba and Dominican Republic in the Caribbean
• -India in Asia

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Investment objectives

• to institute investment incentives supported by
  efficient enabling procedures guaranteeing that
  Antigua and Barbudas tourism sector becomes an
  exciting, risk reduced investment opportunity for
  international and domestic investors alike
• To maintain quality products as well as expanding
  the economic impact of the sector
• To create a high profile image of the country
• to encourage existing properties to expand and
  move up the value chain, and so raise the image
  of the destination

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TAX CONCESSIONS - justification!

• a central component of the development strategy
• commonplace in developed as well as developing
  countries
• justified against the backdrop of increased
  competition in the tourism market and the
  reported threat by firms that they would leave
  otherwise
• granted to promote investment or to achieve
  defined social objectives
• granted not only to newly-established enterprises
  but also to well-established firms

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Efficacy and cost effectiveness of
concessions

• tax concessions are not among the key
  determinants of investment
• tax concessions were not even in the top 15 of
  the 40 areas that firms considered critical for
  their investments (see FIAS, 2004 and World
  Bank, 2005)
• key determinants of investment
• -telecommunications
• - power supply
• - political stability
• - a favorable attitude towards FDI
• -labor productivity

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Revenue Costs of Concessions

• Revenue forgone from Import Related Taxes may
  have exceeded 8 percent of GDP in 2003

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Revenue Costs of Concessions, 1991 -2003
-Customs revenue losses
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Revenue Costs of Concessions - Corporate
income tax (CIT) holidays

• Revenue forgone from CIT holidays exceeded 5
  percent of GDP in 2003

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Friendly facilitative environment
for investment

• Policy framework
• -Tourism Master Plan
• -Antigua and Barbuda Tourism Strategic Policy
  and Plan (2005-2009)
• -Preparation and promotion of product profile
• -Tourism Manpower needs assessment and plan
• Fiscal and investment legislation
• -Tourism Development Act (proposed)
• -Cricket World Cup Projects (Incentives) Act
  2005

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Friendly facilitative environment
for investment

• Regulatory initiatives
• -open market
• -privatization of state enterprises
• -removal of exchange controls
• -free repatriation of profits and dividends
• Institutional framework
• -Antigua and Barbuda Investment Authority as an
  effective one-stop shop
• -Antigua and Barbuda Tourism Authority
• -micro and small business development authority
• -Antigua and Barbuda Sport Tourism alliance
  (ABSTA)
• -Investment Promotions Workshops
• -Re-structuring of the Ministry of Tourism

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Friendly facilitative environment for investment
Tourism Development Act

• Develop a new Tourism Development Act to replace
  the Hotel Aid Act
• Tourism Development Act
• -initiative to create a more facilitate tourism
  investment climate
• -extend the scope and reach of the activities

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Tourism Development Act - scope

• Approved activities
• -hotels including conference areas
• -other tourism facilities
• -water-based activities
• -tourism projects highlighting heritage and
  natural environment
• -arts and cultural investments
• -agricultural-based tourism related activities

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Tourism Development Act -incentives

• income tax concessions in respect of write-off of
  interest
• accelerated deduction of expenditure
• interest rate subsidy
• equity financing
• training
• marketing

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Antigua and Barbuda Investment Authority
one-stop shop

• at present the government unit (Industrial
  Development Board) responsible for investment has
  only few staff members, is isolated from upper
  levels of government, and has limited resources
• the new authority should develop its own website
  to provide information on the investment
  environment in Antigua and Barbuda so as to
  promote the country as a destination for
  investment, in general, and in tourist-related
  investment in particular

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Antigua and Barbuda Investment Authority
one-stop shop

• Simplify the process of investing in Antigua and
  Barbuda
• Level the playing field for all investors
  domestic and foreign
• Remove the discretionary and discriminatory
  character from the process
• Provide a focused and inclusive one-stop
  mechanism for the promotion and coordination of
  all investment proposals
• Advise on governments investment policy
• Ensure greater transparency in the granting of
  concessions

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Antigua and Barbuda Investment Authority
one-stop shop

• Identifying investment opportunities
• Providing information/data on the social,
  political and economic environment in the country
  
• Explaining incentive legislation and the benefits
  available to investors in the tourism and
  hospitality sector
• Liaising with government departments and agencies
  
• Reviewing investment proposals and advising as to
  their general acceptability within the context of
  the Sustainable Tourism Development Plan of the
  Ministry of Tourism

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Antigua and Barbuda Investment Authority
one-stop shop

• Facilitation of the approval process
• Provide full protection and security to investors
  in accordance with international standards
• Tasked with investment monitoring, and more
  importantly investment facilitation to ease the
  passage of investors through the regulatory
  system
• Tasked with data collection, policy analysis, and
  policy advocacy from the investors point of view

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Customs Renewal Programme

• improvement of the administration and operation
  of the Customs Department
• improve the services offered to customers by the
  Department
• reduce private sector costs

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Antigua and Barbuda Tourism Authority

• private sector oriented and led by a board
  comprising senior level hotel managers, general
  managers and CEOs from the industry
• a sustainable, identifiable source of revenue
  (from both sectors) with an established formula
  that apportions government revenue e.g. room tax,
  VAT or incentives contributions

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Antigua and Barbuda Tourism Authority

• the role, responsibilities, functions, powers of
  authority and financing should be clearly defined
• executing agency for the marketing and allied
  research functions for the marketing and
  promotion of Antigua and Barbuda as a tourist
  destination
• Establish a high level public/private sector
  partnership to drive tourism development
• autonomous statutary body with a private sector
  orientation

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Summary of actions required

• rationalise tax regime in relation to tourism
  enterprises
• assess financing needs of small and medium
  tourism enterprises
• review investment incentives
• preparation and promotion of product profiles for
  tourism sector
• convene Investment Promotion Workshop to identify
  fiscal regime and package of incentives to
  attract investment, identify investment
  opportunities

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Summary of actions required

• formulate investment promotion plan
• develop investment plan and strategy
• streamline investor access to information and the
  subsequent processing of that information is done
  through a single agency
• undertake promotions and Monitor and evaluate
• benchmarking the country against other countries
  in the region in how it is perceived by foreign
  investors as an investment location
• establishment of investment promotion agency-ABIA

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Summary of actions required

• establish coordinating mechanism with various
  stakeholders
• review investment opportunities, potential
  targets, promotions strategy, incentives regime,
  financing options, and monitoring and evaluation
  options
• establish incentives regime
• identify targeted investors
• develop a high profile investment image of the
  country
• put in place fast tract system to eliminate
  bottlenecks for approvals

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Conclusion

• Investment is critical for further development
  of the tourism sector, so it is important to
  understand what drives investment. In this
  respect, we need to have an in-depth
  understanding and knowledge about the market -
  what investors are looking for about competitors
  what alternatives investors have as well as
  our strengths, weaknesses, opportunities and
  threats.
• It is the responsibility of the Ministry to
  ensure that the benefits of investments, both
  foreign and domestic are maximized in a way, that
  address the needs of the sector, the national
  economy and the local population.

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Thank you