Notes From The Margin

April 8, 2008

Somehow We’re Not Convinced!

Filed under: Banking,Barbados,Capitalism,Caribbean,Economy,Globalisation,Media,mergers — notesfromthemargin @ 6:39 pm

Has anyone else noticed how all the major bankers are lining up to tell us how the take over of RBTT by RBC won’t affect competition in the Barbados banking market place? First John Beale and now Oliver Jordan who are both saying the same thing….

PRESIDENT and CEO of RBTT Bank Barbados Limited, John Beale, does not foresee any significant impact on the local banking sector from the recently approved amalgamation between RBTT and the Royal Bank of Canada (RBC).

Speaking to Business Monday, Beale stated I dont think it will have a great impact, I dont think it will affect the competition.

You’ll pardon us but somehow we can’t see that the removal of one of the major banks from a marketplace that verges on an oligopoly won’t affect the competition.

Maybe we’re just cynical but despite the goodly efforts of Mr. Beale and Mr. Jordan we remain rather skeptical.


April 7, 2008

Is The Barbados Stock Exchange Becoming Irrelevant? Is it already?

We on the margin were reflecting on the recent conclusion of the Neal & Massey BS&T takeover. Neal & Massey were successful of course in buying the entire company. Some 97% of shareholders willingly took the offer and the remainder were bought out by N&M following the 90% rule. (If you own 90% of a public company you can take possession of the other 10% of shares just by paying for them). So lock stock and barrel, BS&T as an independent entity is history. What was once considered the symbol of white corporate power in Barbados has been sold (but that is another post).

So what happens next? Of course the company will be de-listed from the BSE, it’s now a wholly owned subsidiary so it won’t be traded. As a result the numbers of companies on the exchange take a hit. This will be the latest in a series of reductions in the number of public companies in Barbados. Island Properties Ltd. was taken off the exchange by Colin Brewer & Tony Hoyos, Life of Barbados was taken down by the Mutual (now Sagicor), BWIA was grounded by the Trinidad Government. If we want to think back that far Plantations Ltd. went in a long agonizing slide into oblivion. Now we have BS&T joining the ranks of companies that were once public.

Along with this slow dwindling, there is a scarcity of new companies going on to the exchange. Of course unless you count Sunbeach (we won’t go any further on that one). To make matters worse there’s an overwhelming tendancy for people to buy shares and then hold onto them for long term appreciation. So we have far more buyers than sellers. The mutual funds have added a new dimension but the returns (if you take out the BS&T takeover) have been pretty much moribund.

Merging the regional exchanges will buy time, however the fact of the matter is the investment arena in Barbados is pretty stagnant. If you listen to the rumour mill, the stories floating around about “back room deals” may or may not have substance, but they don’t engender confidence in smaller investors.

The management of the exchange must see the trends, and also must realise that from a long term view, if they do not take action they will be consigned to the same file folder that currently holds BS&T.


March 16, 2008

A Further Thought on Air One…. and other investments.

A further thought on the AirOne story…. The airone project represented a significant investment project that would have brought considerable jobs to Barbados (or Jamaica for that matter). Because of the upward movement of oil prices, that project won’t be happening now.  If you talk to people in the legal and financial fields there is a feeling of caution in the investment community. There are a number of projects that are still going ahead as their investors are committed, however there are some that have been put on pause as investors wait to see what will happen with the global economy.

If Airone has been put on hold, it does make u wonder what other projects are being put on pause? With Oil at $113 a barrel, it may be sometime before they get considered again.


March 5, 2008

Sir Charles Williams on Apes Hill and Agriculture


A couple of days ago we were listening to the mid day call in programme and heard Barbadian construction magnate Sir Charles (COW) Williams call in. After he had made his point, the moderator David Ellis took the opportunity to ask him about the progress of his Apes Hill project.

Never one to miss an opportunity for promotion Sir Charles proceeded to wax lyrically about the great success that Apes Hill is becoming. Apparently the sales of lots has been so great it has forced them to accelerate their business plan to keep up with demand.

Then Sir Charles made an insightful point, when Apes Hill was a dairy farm, it employed approximately 12 persons at minimum wage, in its current state of construction it’s employing close to 400 persons (we were driving so we didn’t have the opportunity to write this down so if the numbers are slightly off don’t scream for our scalps) and those 400 are employed at much higher salaries.  One can reasonably assume that as the project completes it will occupy much more than 12 persons.

Now this opens an interesting point, is moving land out of agriculture necessarily a bad thing for society? Obviously there are limits on how much of this you can do but, is society better off with Apes Hill in agriculture or with it in tourism and golf courses? Similar questions could be asked about Royal Westmoreland.

It is unfortunate that there wasn’t an opportunity for this point to be discussed more on the call in programme.


February 12, 2008

Concerns On The Cost Of Living

We have been watching with interest the efforts of the government to contain the rising costs of food, and while we see a genuine effort being made we have serious concerns about how sustainable that effort is.

Pinnacle Feeds warned about the impending price increase and was asked by the Minister of Agriculture to hold off pending talks with stakeholders. After intially stating that Governement could not subsidize the industry the minister went to bat at cabinet and the following statement appeared in the press today.

The Thompson administration agreed to the price increase but promised financial support to poultry and dairy farmers. When contacted, Minister of Agriculture Haynesley Benn assured farmers they would not be out of pocket.

“We have assured the farmers that they would be compensated. A mechanism has been worked out where there will be a price support for the farmers. A sub-committee met on Friday afternoon with farmers’ representatives and they will report to the Minister of Trade who will meet with them along with the Ministers of Finance and Agriculture.

“We would’ve worked out by that time how the farmers would be compensated. We will get back to the farmers’ representatives as to how soon compensation will come,” he said.

While we applaud the aims of the Government, this clearly cannot be a long term solution particularly in the face of a global rise cost of grain.

Now to be fair the subsidising did not start with this Government, the BLP subsidised domestic power prices by way of a subsidy on the fuel charge. At the time we on the margin chalked up to being an election gimmick that we felt would quickly disappear. However this spreading of subsidies into a new area gives us pause.

Economics cannot be denied.

The upward pressure on prices is mostly exogenous in nature, that is, caused by factors outside of the Barbados economy. There would appear to be a “perfect storm” contributing to these raises including increasing oil prices, increased use of food for fuel, demand for raw materials such as steel etc. by the rapidly developing economies of China and India, and the list goes on. In the face of these forces a policy of subsidization simply is not sustainable, it is at best a stopgap measure that has the potential to damage the economy if it is allowed to continue beyond its limits.

We on the margin are not saying that the government should NOT subsidise, but we would be more comfortable if there was some public indication that the government acknowledged where the limits to this policy are.


January 10, 2008

Politicians, It’s One Week Before Elections, Do You Know Where Your Vote Is?

With one week left to go before elections, Barbados is in the grips of one of the most intense election campaigns in recent memory. The two parties’ campaigns appear to be evenly matched, and evenly funded, and to a certain extent evenly supported. We on the Margin have been watching the silly season unfold in all its glory, and we have to admit we are unable to predict a winner at this stage.

Yes, if you listen to Waiting In Vain and Royal Rumble and the other party hacks that inhabit the blogosphere, they all predict a resounding victory for their particular party. But having spent the last week talking to many people, we think that both parties are “Whistling past the graveyard”. For as much bluster as either side makes we’re not sure that either of them has captured the hearts of the electorate.  Barbadians are looking at both parties with a skeptical eye and the hard truth is that this election could go either way.

What we have noted that this campaign has been more about accusations and counter accusations rather than issues. We would like to see some serious discussion about both parties’ visions for the next five years. While we wish that we could say that we thought we would get such reasoned debate in the next next week, we really don’t think so. We think that this next week will get wilder and dirtier with each passing day.

We on the margin would urge Barbadians,  think long and hard about both parties before you go into the polling booth. Whoever you choose is entirely up to you, but be sure to participate, be sure to cast your x. Be sure to treat that decision with the seriousness it deserves.  Hopefully we will all be better off for your doing so.


November 19, 2007

Is The Barbados Property Market A Bubble?

We on the margin have been observing the skyrocketing prices of real estate in Barbados, especially on the Platinum coast. We can well understand the logic of investing in real estate particularly on the coast in Barbados, after all there’s only so much land and they aren’t making any more of it. Traditionally real estate has been seen to be… as safe as houses.  (sorry for the pun) the old bajan saying of “Land don’t spoil” has been a truism that traditionally could be counted on as readily as the sun coming up tomorrow.

The legions of real estate agents will tell you that land has never declined in value in Barbados. In fact the tremendous appreciations in property values has attracted international attention, with international agents who market to the affluent UK market.  Now here’s where things get interesting….

The price of premium property in Barbados is out of the reach of all but a very few Bajans. And further if we’re honest much of it is already owned by BVI corporations to get around the issues of property transfer tax. The reality is that the demand for Barbados property is being driven not by the Barbados market but by the UK economy.  Suddenly things don’t look so rock solid any more.

If we then factor into the picture the possible effects of a global economic slowdown (keep an eye on that sub prime mortgage crisis) it is VERY possible that in such a scenario, Barbados’ overvalued beachfront could become just so much seawater and sand.

October 18, 2007

The wider implications of Hardwood Housing, The Enterprise Growth Fund and Politicians

We on the margin have been following the first real engagement of the upcoming silly season with a passing interest. We’re sure that the other blogs will dissect the particulars of the Mascoll/Murrell/Hardwood/EGF situation ad nauseum. We would like to take a slightly broader view of this, consider the following:

  1. Government has set up the Venture capital funds like the Enterprise Growth Fund and the Innovation Fund etc. to help develop small businesses who have great ideas but limited access to capital. These funds deal specifically with entrepeneurs who would by their very nature scare a commercial bank’s risk management department.
  2. The means of functioning of these funds is to take equity positions in (invest in ownership of) these relatively high risk ventures. In doing this the funds will typically take a controlling interest and award the entrepreneur “sweat equity” if he has no funds of his own to put into the operation.
  3. The EGF and its like, ARE  government funds, (Taxpayers money) and should be subject to the PAC etc.
  4. There is considerable discretion in how these funds invest, obviously if the funds are invested badly the fund will go bankrupt so there is an economic reality that the fund managers have to deal with but they do have considerable leeway in making investment decision.
  5. It is THEORETICALLY possible for abuse to happen, for example for a politician’s friends to get preferred access to the funds (We are NOT saying that is what happened with Hardwood) and there does need to be some oversight to avoid this.
  6. It is also THEORETICALLY possible for someone with a political axe to grind to pick on a random EGF company and drag it through the mud in an effort to get some of the mud to stick to a particular politician. (Once again, we are NOT saying that is what happened with Hardwood)

 Now here’s the rub…

How many entrepeneurs are looking at the Hardwood housing political theatre show, and deciding that they will not approach the EGF because of the risk of becoming collateral damage in a political crossfire?

And just to be even handed…

What level of confidence can the EGF give to the public and politicians on their investments as they are playing with taxpayers dollars?

Let us hope that we can find an answer to this, otherwise we may be compromising one of the most promising ways to advance economic enfranchisement of our working class.


October 3, 2007

A Banking Fairy Tale….

Once upon a time there was a small bank called Caribbean Commercial Bank. It wasn’t very big as banks go, but it was friendly and it focussed on the needs of its customers. It came into the market at a time when banking was pretty much a “take it or leave it” proposition. Over time the little bank gained more and more customers and began to shake up the older established banks. As the little bank grew bigger and bigger the established players became more and more uneasy and started to take their small customers a little more seriously.

One day the owners of the little bank decided they would sell it to another bank called RBTT. While RBTT was a bigger bank the CCB it still was new to the market and focussed aggressively on serving the customer and winning market share. And the customers after their initial concerns, were happy as the level of service at the bank remained high (even if it was not quite what it was in the CCB days).

Then the bigger bank was bought by one of the BIG OLD BANKS in the market place….

In case you haven’t heard by now RBTT has been bought by Royal Bank Of Canada, while this can be interpreted as a vote of confidence in the development of the Caribbean, it does reduce the already small number of commercial banks in the Barbados market place.

One of the features of the Banking industry in Barbados is that the indigenous banks have brought a level of competition and innovation to the market. These aspects were severely lacking in Banking services in Barbados before the indigenous banks came along. We will have to see what emerges from this buyout. Hopefully it will not be another Canadian owned Caribbean bank with a huge balance sheet and impersonal customer service.


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