Caribbean Region - Corporate Treasury Update

Commentary

In Europe and North America, we are moving towards the time of year when people start to dream of the Caribbean and yearn to swap the prevalent grey skies and cool temperatures for the idyllic sun, warm seas and sandy beaches for which the region is famous.

While this is part of the reality, and some countries are wealthy, the area is also home to places where grinding poverty is the norm, and political upheaval is a regular occurrence. So – what is it like to do business there?

The quick answer, reinforced by this call, is that it is challenging. The region presents several problems to MNCs:

• It is very fragmented: in addition to the local languages, there are countries which speak English, Dutch, French and Spanish.
• There is little or no political unity between these countries, even on linguistic lines. The result is that, even when a country is wealthy on a per capita basis, it is not a big enough market to attract a lot of attention or resources from HQ. In addition to the many independent states, France, the US, the UK and the Netherlands all maintain overseas territories there – these are usually included under those countries.
• The main sources of income are inherently volatile: tourism, oil and gas, tobacco – all present challenges. The result is a perennial shortage of hard currency: while this varies from country to country, participants experience delays in making payments from all markets.
• Banking structure: the region tends not to be a major focus for most MNCs – and the same applies to the international banks. Most participants use a mix of local and international banks, as the international banks do not have a full presence. 
• This all results in a situation where managing treasury is complicated. Cash can be extracted, but it is painful and takes time. Local banks are used, but none of them is big enough to become a significant relationship. It is worth doing business in the region – but it is not big enough to devote a lot of focus or resources to trying to address the problems.

This call echoed these issues: 

• Most participants use a mix of international and local banks: Citi and Scotiabank were mentioned, as was Banco Popular in the Dominican Republic and Republic Bank in Trinidad and Tobago. One participant complained that international banks wanted more business in Mexico, Chile or Brazil before they would improve service in the Caribbean. The usual problem with the international banks is that they do not provide full geographical coverage within the countries. Local banks are often viewed as being essential for services such as payroll, but they can also have foreign currency when the international banks don’t.
• The Dominican Republic is the biggest market for most participants, and one which works relatively well. Trinidad and Tobago is a country with significant natural gas deposits, but which has been negatively affected by a downturn in that market. It is currently proving very difficult.
• Some participants use an offshore sales structure, with the local entities acting as marketing agents, and collections going to offshore bank accounts, usually in the US. This seems to work, but a lot of attention is required to keep on top of collections. 
• Also, internal organisation structures vary, both in terms of structures by internal division, and in terms of whether the region reports to North America, South America, or elsewhere. One has split the region into an Anglo Dutch area and the Dominican Republic. Even though it is on the South American mainland, Guyana is often included due to its links to Trinidad and Tobago: while it is still a small market, it is growing fast due to the discovery of oil.
• While FX payments are generally slow across the region and hard currency can be difficult to obtain, formal exchange controls are relatively rare in the region. Participants reported that it can be easier to obtain euros than dollars, though often a premium has to be paid. However, it is not unusual for cross border remittances to be delayed by days, without a satisfactory explanation.
• Another common feature with local banks is a low level of automation and adoption of modern technology – one participant is still having to fax payment instructions to their bank.

Bottom line: MNC treasuries struggle with this region. It is diverse and it is not a big enough market to put a lot of time and effort into addressing the many inefficiencies which exist. Despite these inefficiencies, it generally works: there are delays getting cash out, and banking relations do not work the way treasurers would like. But the amounts involved do not make this a major focus for either the banks or the MNCs.

So maybe it will remain a good holiday destination…..