By Kerron Mckenzie
Banking and Finance Final-Year Student | Youth Leader
When we hear the word “economy,” many people think of complicated statistics, government budgets and financial experts. But the economy is much closer to us than we realise. It affects the price of food, the cost of gasoline, our salaries, the interest we pay on loans and our ability to save and invest. For small Caribbean economies such as Antigua and Barbuda, understanding these connections is especially important.
Antigua and Barbuda’s economy depends heavily on tourism, construction, financial services and imports. Tourism remains one of our major economic engines because visitors bring foreign currency into the country and create income for hotels, restaurants, taxi operators, tour companies and many other businesses. However, tourism also makes us vulnerable. A recession in a major tourism market, higher airline costs or an international crisis can quickly affect the number of visitors coming to our shores. This is why economic diversification should remain a priority.
Production is another important part of the conversation. A country cannot become prosperous simply by consuming; it must produce goods and services that create value. Antigua has opportunities in tourism, agriculture, fisheries, construction, financial services, professional services and technology. The challenge is ensuring that more of the money generated within our economy remains here. When a hotel purchases goods and services from local businesses, more of the tourist dollar circulates domestically. When those goods have to be imported, part of that money leaves the country.
Construction demonstrates this point clearly. A major hotel or residential development can create employment for contractors, engineers, electricians, plumbers, truckers and other workers. It can also create business for banks, insurance companies and suppliers. But if most of the construction materials and equipment are imported, much of that spending eventually leaves the economy. Therefore, the conversation should not only be about how much we build, but also about how much local economic value we create from what we build.
Another issue that every citizen should understand is the price of oil. When international crude oil prices increase, the impact does not stop at the gas station. Crude oil is connected to products such as gasoline, diesel and jet fuel. Higher energy costs can increase transportation expenses, airline operating costs, construction costs and the price of bringing food and other goods into the country. In simple terms, when energy becomes more expensive, many other things can become more expensive too.
This is one reason inflation matters. Inflation reduces our purchasing power, meaning the same amount of money buys fewer goods and services. If your salary increases by 3 percent but prices increase by 5 percent, you may be earning more money but still be worse off in real terms. This is also where real interest rates become important. If your savings earn 3 percent while inflation is 4 percent, your money is growing on paper but losing purchasing power in reality.
Taxes also play an important role. Government needs tax revenue to finance roads, healthcare, education, public safety and other services. However, taxation also affects consumers and businesses. The challenge for Caribbean governments is finding a balance between raising sufficient revenue and creating an environment that encourages investment, entrepreneurship and economic growth.
Our financial institutions are also central to this process. Banks do more than hold our money. They help move savings into productive activities by providing financing to individuals and businesses. Institutions such as ACB Caribbean are therefore an important part of Antigua and Barbuda’s financial system, while the Eastern Caribbean Central Bank plays a broader regional role in maintaining monetary and financial stability.
Citizens should also become more familiar with investment opportunities. Saving money is important, but saving alone may not always be enough to build long-term wealth. Depending on an individual’s financial position and risk tolerance, opportunities can include deposits, government securities, bonds, equities, pension funds and investment in businesses. The question we should increasingly ask is not only, “How much money can I save?” but also, “How can I make my money work for me?”
Ultimately, the Caribbean economy is interconnected. Tourism affects employment. Oil prices affect transportation. Transportation affects the cost of goods. Inflation affects purchasing power. Interest rates affect borrowing and investment. Banks channel capital into the economy, while government policy influences the environment in which businesses and citizens operate.
As Caribbean citizens, we should not wait until the price of gasoline increases or the supermarket bill becomes more expensive before paying attention to the economy. Economic literacy is financial literacy. The better we understand how our economies work, the better equipped we are to make decisions about our money, investments, businesses and future.
For Antigua and Barbuda, the goal should not simply be economic growth, but sustainable growth that creates opportunities, strengthens local production, encourages investment and allows more citizens to participate in the wealth being created.
— Kerron McKenzie, Final-year Banking & Finance student, UWI Five Islands
This article was originally published by Antigua News Room. Read the original article here: COMMENTARY: The Caribbean Economy: What Every Citizen Should Know.