Foreign Direct Investment and possibilities for youth unemployment. Your Logo

Transcription

1 Foreign Direct Investment and possibilities for youth unemployment.

2 WHO ARE WE? 25 Member States 7 Associate Members Intergovernmental Organization founded on 1994, with five key areas of concern: The preservation and conservation of the Caribbean Sea. Sustainable tourism Trade Development and External Economic Relations Disaster Risk Reduction Transportation 2

3 Structure 1. Unemployment 2. Youth unemployment 3. FDI and corollary issues 4. Productivity 5. Caribbean context 6. Some Key questions 7. Conclusion 3

4 Key Issue: Unemployment In developed countries the highest rate of unemployment is among persons with primary education only or lower while in developing countries a large portion of the working population is informally employed. Regionally 47.7% of employed non-agricultural workers work in informal conditions 4

5 Key Issue: Youth This cohort represents the most significant age group in the employment problem In Latin America and the Caribbean 6.6 million unemployed youth in urban areas (2013) representing 14.% of the population Comparatively youth unemployment is 2.25x the total rate 3.2x the adult rate Further 70% of youth not working or studying are WOMEN 5

6 For the Caribbean specifically: Available data shows that in most countries youth unemployment is double the rate of total unemployment (Source: Parra Torrado (2014) Unemployment, Youth and Active Labor Market Policies in the Caribbean Manuscript, World Bank) 6

7 (Source: Parra Torrado (2014) Unemployment, Youth and Active Labor Market Policies in the Caribbean Manuscript, World Bank) 7

8 Key Issue: FDI The Caribbean attracts very high Foreign Direct Investment (FDI) relative to size of economy. Caribbean nations have an average FDI-to-GDP ratio of 7.3 per cent, compared to 3.0 per cent in the rest of Latin America (Source De Groot, Ludeña (2014) Foreign direct investment in the Caribbean Trends, 8 determinants and policies, UNECLAC)

9 Why is FDI important? The prevailing thoughts in the literature: The impact of FDI on growth in developing countries is strong with respect to technology transfer and spill-over effects when transnational companies invest. The theoretical framework underpinning its attractiveness is that it: Contributes to domestic investment Enhances local technological capacity Facilitate Technology transfer taking place Strengthens the competitive9 capacity of the host counter

10 Key Issue: FDI Income Caribbean FDI flows are relatively unprofitable, FDI income significantly lower than in Latin America. Possibly due to the sectoral pattern of investment. Natural resources extraction important role in several economies Requires relatively large capital outlays Responsible for a large share of investment. 10

11 Key Issue: FDI Outflows Repatriation of FDI income is also higher in Caribbean economies than in Latin America. Business environment possibly acts as a disincentive for reinvestment of profits. In 2013 outflows of FDI income from the region reached a level equivalent to 81% of the value of FDI inflows. 11

12 Key Issue: Productivity The region lags its main trading counterparts and the world in productivity growth. Given the high levels of FDI seen in regional economies it is expected that GDP growth would mirror it, however the regions GDP grew by: 2.7% (2013) less than the 3 preceding years 3.1% (2014) Labour productivity index, (2000=100) 12

13 Key Issue: Information: The Caribbean context The region is characterised as data poor. There is an absence of reliable consistent credible and transparent information across most sectors. The region in largely unrepresented in (market) analyses by regional/international organisations because of this gap Governments are unable to measure gains against targets set. Investors don t have sufficient data upon which to base their analyses. 13

14 Key Issue: Information: The Caribbean context Homogenous, reliable information is fundamental in creating a data driven market approach to attracting and generating new investment Attracting investment ie increasing FDI flows REQUIRE accurate information 14

15 FACT Despite attracting relatively high levels of FDI over an extended period, the region has not been able to successfully absorb FDI to drive local economies. 15

16 Key questions In aiming to attract investors where should we be placing the most of our efforts?? 1. In reducing bureaucracy? 2. In investing in training of the population? 3. Or in offering incentives for investors? 16

17 Research Researchers have begun to stress the importance of local capabilities (educated and trainable workforce) in ensuring benefits flow to local economies from FDI - Borensztein et al. (1998) FDI inflows create a potential for spillovers of knowledge to the local labour force,.the host country s level of human capital determines how much FDI it can attract and whether local firms are able to absorb the potential spillover benefits - Blomström and Kokko, (2002) FDI impact on economic growth depends on the availability of adequate human capital - Bengoa and Sanchez (2003) 17

18 Research The absorptive capacity of developing counties was the single most important factor in determining how much a country benefits from FDI - Hausmann and Rodrick ( 2005) Efforts and resources might be better placed on building a local domestic capacity to innovate as a complement to FDI rather than merely providing incentives to raise the level of FDI inflows - James (2006, 2009). In line with the view that given the pressure of competition FDI flows will move to areas where there are complementary services and activities including a pool of labour that can advance their ability to innovate. Alleyne, Edwards (2011) 18

19 Policy: All approaches are important (Incentives, reducing bureaucracy, training) in attracting outside investment and encouraging internal investment. BUT more attention should be placed on how government intervenes in the labour market place. There can be a positive relationship between FDI and productivity but only IF there is a certain level of human capital available. More focus should be placed on faster investment in human capital development versus incentivising to raise level of FDI or reduction of bureaucracy. 19

20 To compete on the quality of goods and services, countries require a well-skilled labour force. This includes mid-level trade, technical and professional skills as well high-level skills associated with university education. While vocational programmes may increase economic competitiveness, many vocational programmes currently: fail to meet labour market needs do not adequately prepare young people for jobs are separated from the fast-changing world of modern economies (due possibly to the fact that there is not much private sector/industry participation 20

21 Countries with strong initial VET systems have been relatively successful in tackling youth unemployment, even during the recent economic crisis. But before we can embark on a aggressive training programmes in the region, it is essential that we are able to anticipate skills need and align training with the changing needs in the labour market to match the skills to investor requirements (internal and external) 21

22 This requires competent data to drive these policies Only then can we train the workforce towards the gaps that exist. 22

23 Conclusions 1. Be better prepared Well prepared countries attract better investments. This is true in the case of infrastructure, true in the case of legal frameworks, and it also true for education particularly in the information age. 23

24 Conclusions 2. Opportunities in Youth and employment Unemployment in this cohort is high but significant opportunities exist. Converting informal jobs into formal ones will be a significant fillip for regional economies as this reduces the perception of corruption, increases revenue flow to tax coffers 24

25 Conclusions 3. Positioning There needs to be significant effort placed in acquiring, producing and using labour market information to set baselines against which there can be measurement and against which training can be targeted Labour market studies Market analysis studies Export potential assessment Market Attractiveness Index etc 25

26 Thank you ASSOCIATION OF CARIBBEAN STATES (ACS) 5-7 Sweet Briar Road, St Clair P.O. Box 660, Port of Spain Trinidad and Tobago, W.I. Tel: (868) Fax: (868)