Within two weeks in September 2017, hurricanes Irma and Maria slammed into the Virgin Islands, causing approximately $3.6 billion in facility damages. These damages were felt in many sectors: medical, education, fire, police, government, infrastructure (including roads, water, sewerage, telecommunications, electricity and ports), tourism, attractions, recreation, housing, business and so on. In addition to facility damages, the economy, gross domestic product, and employment were also adversely impacted.

The ravaging storms also radically and severely changed lives and circumstances. About 70 percent of homes were damaged, and they are now in various stages of repair. Many residents are still yearning for a return to some normalcy. Though some recovery progress has been made, many residents, businesses and so on are still struggling to regain their footing.

Meanwhile, a general election is constitutionally due no later than mid April. Whatever government is elected will have its hands full facing myriad challenges. It will require strong and energised leadership to reset the compass and put the VI on a new steady course.

 

Challenges

These challenges include reconstructing a first-world infrastructure with a sound road network; a clean, safe and reliable water system; an enhanced wastewater system; a modernised electrical grid; a state-of-the-art high-speed telecommunications system; and modernised port facilities, among other needs.

The territory will also have to address affordable housing; quality-of-life services; economic growth, development and sustainability; financial services and tourism (the twin pillars of the economy); economic and political independence; governing transparency, accountability and responsibility; environmental resources protection and preservation; foreign direct investment; economic diversification; national capital improvement programme projects recovery, and so on.

All of these issues are critically important. However, in this commentary, I will comment briefly on a) national recovery, b) economic diversification, c) foreign direct investment, and d) economic and political independence.

 

 

Independence

There is an ongoing debate among residents about the opportunity to pursue political independence. Independence indeed must be an issue on government’s bucket list, and at some point it needs to be addressed through a referendum. Nonetheless, economic independence is the driver for political independence. Without it, political independence is only a hollow shell and a pipe dream.

What is economic independence? It is control of the majority of a nation’s resources by its residents. This equates to local ownership of resources. However, the VI is resource poor, it depends heavily on external investment, and it is highly susceptible to external shocks. Consequently, this economic independence weakness must be addressed if the political independence dream will become a sustainable reality.

Moreover, economic independence will be a heavy lift. Nevertheless, it is critical for supporting and sustaining political independence, if it is to become a reality.

 

 

Economic diversification

The VI is a resource-poor, small, open economy that lacks the natural resources to develop either a strong primary (forestry, fishing, mining, oil or strategic minerals/metals) or a secondary economy (manufacturing). It has a tertiary service economy.

Tourism and financial services are the twin pillars of the economy, with financial services contributing approximately 60 percent of government revenue. Further, together tourism and financial services contribute approximately 90 percent of GDP.

Nevertheless, financial services and tourism are two weak, fragile legs on an unsteady stool. Thus, if either one stumbles, the whole economy can tumble.

Hurricanes Irma and Maria demonstrated the fragility of the current economic sectors. The current economic course is not sustainable, and the economy must be diversified. Economic diversification is insurance for preventing and minimising the stumbling of one economic sector from causing the catastrophic tumbling of the whole economy. Diversifying the economy will be a heavy lift for the government and the rest of the territory, but urgent action is needed. There are various areas for potential economic diversification, though each is unlikely to form a strong third economic pillar on its own: agriculture, light manufacturing, fishing, back office activities, medical tourism and knowledge-based economy, for example.

Human capital is the territory’s prime resource, and it must be invested in to form the foundation for a strong and sustainable economy.

 

 

Foreign investment

Foreign direct investment (FDI) is characterised by the controlling ownership of a business in a home country or territory by investors from abroad. The controlling ownership can be acquired through joint ventures, mergers, acquisitions, new enterprises and so on.

Though economic independence is a function of locals controlling the majority of a nation’s wealth and factors of production, the reality is that the VI is a small locale and may require more than local investment capacity and capability to boost economic growth, development and sustainability, as well as improve quality of life and standard of living, after the devastating damages inflicted by hurricanes Irma and Maria. Consequently, FDI is an option that will be needed to invest on road infrastructure, water utilities, energy, electricity, telecommunications, tourism facilities, ports and so on to rebuild the territory.

However, attracting substantial FDI requires various criteria: ease in setting up businesses; a skilled workforce; first-world infrastructure; opportunity to turn a profit with minimum risk; rule of law and so on. Further, FDI must be structured to create a win-win for both the companies and the territory. Local participation must be aggressively employed to the maximum extent practical.

 

Recovery planning

The territory is in a recovery mode after the hurricanes, requiring funding, technical skills, skilled craftspeople, effective planning, programming and budgeting to fuel the recovery effort.

As such, the VI will definitely have to borrow hundreds of millions of dollars to fund the recovery effort. Nonetheless, the territory does not have the financial resources to adequately and effectively fund the recovery effort and must borrow to rebuild. Borrowing will definitely increase the national debt and may temporarily increase the debt-to-GDP ratio beyond the 40 percent suggested by the International Monetary Fund for developing countries. Nevertheless, borrowing is needed. Therefore, the use of these borrowed dollars must be optimised to achieve the desired long-term positive outcomes.

Further, the devastation caused by Irma and Maria presents an opportunity to re-plan the territory’s real property facilities footprint, improving facilities design and construction, along with maximising limited land use. Thus, the planning, programming and budgeting process must look beyond designing and constructing damaged real property facilities in like kind.

 

ESHS campus

An example of not just rebuilding in like kind is the Elmore Stout High School campus. The campus should be razed, re-designed and constructed to maximise the land use of this piece of prime real estate in the midst of Road Town, the capital city.

Land is a scarce and non-renewable resource in Road Town and elsewhere in the territory. Thus, the planning process must look towards the future and invest the borrowed hundred of millions wisely, efficiently and effectively for the benefit of residents and visitors. Taxpayers expect fair and reasonable pricing and value for money.

Undoubtedly, the territory is in one of the most unsettling times in its history. Consequently, it needs a visionary, experienced, competent, results-oriented and steady hand to steer it safely through the current squall and put the territory’s ship back on a steady and sustainable course.