Belize v14

8/7/2019 Belize v14

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Belize

Country Risk Analysis

8/7/2019 Belize v14


Scope of Analysis

This analysis will look mainly at the status of Belizes economy by way of itseconomic indicators and through an investigation into the countryspotential to qualify as an emerging market

�GDP growth

�Sectors contributing to GDP�Chief Domestic Exports

�Other Economic indicators including± Exchange Rates

± Inflation Rates

± Interest Rates

�Investment Incentives

�Investment Challenges

�Conclusion and Recommendations

8/7/2019 Belize v14


Economic Overview

� Small open economy

� Narrow export base

� Country vulnerable to exogenous shocks

� Since 2005, growth in the traditional sectors of the economy has decelerated, reflecting in partthe impact of severe weather-related shocksduring 200708.

�Starting in 2006, petroleum extraction has been amajor factor contributing to growth, accountingfor approximately 5 % of GDP in 2008

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GDP Growth� GDP growth accelerated slightly to 2.1% in 2008 notwithstanding the global financial

crisis and extensive damage from the two tropical storms which hit the country

� The main impetus for growth came from the secondary sector with expansions in

construction activity and petroleum extraction

� Belizes economy is projected to decelerate in 2009 due to the global downturn with

real growth weighing in at 1%, reflecting the impact of declining tourism, remittances,

and FDI inflows� The real impact of the global slowdown is expected to be partly offset by a recovery in

agriculture and an expansion of the energy sector

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Sectors contributing to GDP

� Primary sectors Agriculture

(11% of GDP, 2008):

Agriculture, forestry, fishing, and

mining

� Secondary sectors Industry

(19.8% of GDP, 2008):

Manufacturing, electricity and

water supply, and construction

� Tertiary sectors - Services (55%

of GDP, 2008): Hotels and

restaurants, financial

intermediation, trade, and

transport and communication.

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Sectors contributing to GDP

� Sharpest growth in 2008 in the secondary

sector driven by the funneling of foreign

investments into condominium developments

for tourists

� Growth in the tertiary sector reflected the

upgrading and expansion of the cellular

network and services

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Chief Domestic Exports

� International crude oil prices which hit a high in July 2008 ensured that petroleum

was the countrys main export earner in 2008

� In 2007, tourism was the single largest foreign exchange earner bringing in US

$275M. Citrus accounted for US $53M, Sugar cane for US $44M and Bananas US

$19.9M

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Balance of Payments

� Expansion in the trade deficit caused the current accountdeficit to spiral upward to 11.1% of GDP

� Falling tourism receipts and increasing international freightcosts were counterbalanced by higher earnings from other

services� The surplus on the capital and financial accounts almost

doubled to US 436.2M because of FDI from petroleum, realestate and tourism as well as higher loan inflows to theprivate sector

�The current account deficit was adequately financed andgross international reserves increased to US $332.3M theequivalent of 2.58 months of merchandise exports

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Reserves

0

20

40

60

80

100

120

140

160

180

2004 2005 2006 2007 2008

Gross usable official reserves (in

% of GDP)

Gross usable

official reserves (in

% of GDP)

0

0.5

1

1.5

2

2.5

2004 2005 2006 2007 2008

Gross Usable Official Reserves In

months of imports

Gross Usable Official

Reserves In months of

imports

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Balance of Payments

-

-

-

-

u ent ccount Balance

ap tal ccount Balance

¡ ¡ ¢

¡ ¡ £

¡ ¡ ¤

¡ ¥ ¡

¡ ¥ ¥

¡ ¥

¡ ¥ ¦

¡ ¥ §

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Inflation

� Domestic price inflation has been low historically

� Inflation rose to nearly 10 % by mid-2008 driven largely by food and fuel prices

� Falling fuel costs in the fourth quarter caused the decline of the inflation rate

considerably

� By February 2009, inflation declined to about 1½ percent

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Interest Rates

� Interest rates charged on loans in the country are quite high

� Leading local bank reports that even its best corporatecustomers are charged 12% on loans

� Belize is clearly a high cost of finance country.

0

2

4

68

10

12

14

16

18

2000 2001 2002 2003 2004 2005 2006 2007 2008

Interest Rates (%)

Weighted Average Lending Rate Weighted Average Deposit Rate Weighted Average Interest Rate Spread

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Exchange Rates

� Since 1976, the Belize dollar has been pegged

to the U.S. dollar at the rate of BZ$2=US$1

�

There is little exchange rate risk due to thelack of exchange rate fluctuations

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Investment Incentives�

Belize enjoys political stability� Belize is a tax haven with investor-

friendly advantages e.g. a tax

holiday, or import duty exemption, or

a combination of both

� Little exchange rate risk since Belize

dollar pegged to US $ at rate of BZ$2for more than 30 years

� Movement of capital without

restrictions

� Belize has preferential market access

for many products to

Europe, Canada, USA and the

Caribbean

± Europe under LOME V

± CANADA under CARIBCAN

± USA under CBI II

± Caribbean under CARICOM

�

Belize Government has enacted lawsto allow for the incorporation andoperation of International BusinessCompanies (IBC)

± government supports jointventure and partnershipinvestments as a preferred

mechanism± however it also allows 100%

foreign ownership of anenterprise

± Importation of highly skilledpersonnel to compliment the

Belizean labor force is facilitatedproviding that appropriatetraining programs for nationalsare established (the governmenthopes to see one localcounterpart assigned for everyskilled foreigner employed by the

company)

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Investment Impediments

� Complaints by companies that a slow and inefficient bureaucracy

and red-tape often impede the granting of and effectiveness of

incentives offered to export oriented industries, especially in less

developed areas of the country� Current system of investment promotion requires that every single

investment in an outward-oriented industry be examined and

approved by cabinet and/or a private sector board

± highly-discretionary system which has high transaction

costs, while also leaving open the door to corruption and

politically-based spending

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Recommendation

Yes, invest in Belize because the economic outlook for Belize continues firm.

� While tourism has dropped, the losses have been replaced by oil exports.

� Tourism should resume once the North Americans sort out their own economy andsettle down and the Belize economy will continue expanding. The economy isexpected to rebound most robustly in the winter of 2010-11.

� Construction is up, new homes and businesses are up. Standard of living is risingrapidly and becoming more diversified to a constantly expanding middle class.

� Government tax revenues from the General Sales Tax are up and there areimmigrants coming into Belize. Some are coming because Belize is a tax haven butmany are coming also for better medical services at lower costs in Belize, thanavailable in the USA and the more desirable tropical climate.

�

Unemployment is down just slightly but still is around 8%. The unemploymentrate in Belize may be artificial because a large part of the people are self employed, and grow their own subsistence food.

Belize v14

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