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

2. 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)

3. Travel and tourism • travel and tourism industry is the world’s fastest growing industry and the world’s 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

4. the global market place is extremely competitive and Antigua and Barbuda’s market share is very small globalization makes it increasingly important to get the “investment climate” right Tourism – global market place

5. Gross Investment across Caricom- 1985 - 2003

6. Tourism FDI inflows, 1998 - 2002

7. GDP growth and Gross Investment-to-GDP Ratios, 1995-2004

8. FDI to GDP Ratios, 1980-2002

9. Investment and Growth, 1990-2003

10. Investment trends in the Caribbean

11. 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 institutions—transparency and efficiency in regulation, taxation, and the legal system; a strong and well-functioning financial sector; labormarket flexibility; a skilled labor force • infrastructure—transportation (roads and ports), telecommunications, power and water supply

12. Investment climate

13. Tourism investment climate

14. Ratings of the Investment Climate in the Caribbean

15. 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 Facilitative environment – role of the Government

16. Tourism related legislation • Hotels Aid Act • Income Tax Act • Income Tax Amendment Act 2003 • Cricket World Cup Projects (Incentives) Act 2005 • Additional Incentives

17. 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

18. 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

19. 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

20. 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

21. 72 new projects approximately EC$203 million majority locally owned over 1000 rooms Cricket World Cup Projects (Incentives) Act 2005

22. 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

23. government’s 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 Investment climate: Key factors for investors - strengths

24. positive attitude of local persons and businesses stable, democratic government stable and strong regional currency good international communications proximity to the U.S.A Investment climate: Key factors for investors - strengths

25. 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 Investment climate: Key factors for investors - strengths

26. 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, Canada’s Caricom Program, EU EAP, etc. Investment climate: Key factors for investors - strengths

27. cultural and heritage tourism marine and cruise tourism Accommodation sector cuisine tourism agro-tourism Investment climate: Key factors for investors - opportunities

28. medical tourism sports tourism religious tourism artifacts and handicraft production other tourism related services Investment climate: Key factors for investors - opportunities

29. weak physical infrastructure high costs of doing business Absence of land use policy Government red tape Customs and trade regulations Investment climate: Key factors for investors - weaknesses

30. crime and insecurity increasing competition from destinations offering better value for money -Cuba and Dominican Republic in the Caribbean -India in Asia Investment climate: Key factors for investors - threats

31. Investment objectives • to institute investment incentives supported by efficient enabling procedures guaranteeing that Antigua and Barbuda’s 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

32. 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

33. 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

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

35. Revenue Costs of Concessions, 1991 -2003 -Customs revenue losses

36. Revenue Costs of Concessions - Corporate income tax (CIT) holidays • Revenue forgone from CIT holidays exceeded 5 percent of GDP in 2003

37. 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

38. 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

39. 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 Friendly facilitative environment for investment – Tourism Development Act

40. 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 Tourism Development Act - scope

41. income tax concessions in respect of write-off of interest accelerated deduction of expenditure interest rate subsidy equity financing training marketing Tourism Development Act -incentives

42. 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

43. 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 government’s investment policy • Ensure greater transparency in the granting of concessions

44. 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

45. 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

46. 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

47. Antigua and Barbuda Tourism Authority • private sector oriented and led by a board comprising senior level hotel managers, general managers and CEO’s 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

48. 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

49. 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

50. 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