Image: A Russian serviceman watches a barley harvest in Ukraine’s Zaporizhzhia Region. Source: Alexei Konovalov / TASS.
Though the Caribbean is far removed from the battlefields of the Russo-Ukrainian War, the conflict continues to have a significant impact on the region. Many Caribbean countries, in this case, those that constitute the CARICOM nations (mainly English-speaking countries and Suriname), seek to recover from the harsh economic downturn caused by the COVID-19 pandemic, only to be hit by another major external shock. The combination of inflation and increasingly stressed public finances are taking their toll on the region’s economies.
Part of the problem the Caribbean faces is geopolitical, with three major observable trends. First and foremost, global geopolitics have been shifting for several years. The Russo-Ukrainian War is not a sudden, watershed moment. In many respects, the key breakpoint came in 2008-2009 with the global financial crisis, the epicenter of which was in the United States, the United Kingdom, and, eventually, the European Union. Observing this, a strong view came about in China that the Western model of capitalism and liberal democratic governance was not necessarily an optimal model. Indeed, China played a major role in helping to prevent the global economy from hitting a deeper and darker economic bottom than what occurred.
The rise of China, with a preference for authoritarian capitalism, became a point of friction, especially as the Asian giant made clear its intentions to become the hegemonic global power or, at the very least, to push the international system into a more multipolar set-up.
The signs of a growing Cold War between the U.S. and China became evident during the Obama and Trump administrations.
- The Trans-Pacific Partnership (TPP) proposed by the Obama administration was generally designed to contain the rise of China.
- China’s push to assume command over the South China Sea and East China Sea, ongoing threats against Taiwan (which spilled over into the Caribbean with fights over diplomatic recognition), and an ongoing push to stifle any form of democratic governance in Hong Kong, fed the perception that the world was shifting into a new Cold War.
- The Trump administration carried all of this one step forward by launching a trade war with China in 2018.
- Russia has little inclination to be left out of this new Cold War. With less economic capacity than China, Russia was willing to use military force to get what it wanted in the world. In Moscow’s eyes, it protected its sphere of influence in Georgia (starting a short war to prevent that country from joining NATO or the EU in 2008), taking Crimea in 2014, and helping prop up friendly regimes in Syria, Venezuela, and parts of Africa (with arms, advisors, and mercenaries).
A second trend is that shifting geopolitics has catalyzed shifting geo-economics. As a result, economic statecraft has become a major factor in the interplay between nations, with China playing its hand skillfully. That is certainly the case in the Caribbean, as reflected by new roads, upgraded airports, and modernized harbors and hospitals. Chinese penetration into Africa, where Beijing has emerged as the major sovereign lender also mirrors this trend.
China’s use of economic statecraft was also helped by a retrenchment of spending for developmental assistance in many Western capitals, including the United States. Moreover, U.S. interest in the Caribbean had receded in the aftermath of the Cold War in 1992. Thus, China’s checkbook found a lot of new friends.
Shifting geopolitics has also meant that the global economy has been undergoing a process of decoupling between China and the West (since the start of the Sino-American trade war in 2018). Globalization has retreated, being replaced by regionalization—a moving of supply chains closer to home. In the Caribbean, this process is evident in the move to nearshoring, which includes everything from call centers and business services to the production of medical devices. The Dominican Republic has already been particularly effective in regionalization, and CARICOM countries are rapidly following in its footsteps, led by Jamaica, Barbados, and Guyana.
The final point to consider on the geopolitical front is that Russia’s invasion reinforced the two above developments. Moscow’s actions have pushed the idea of a global economic system being pulled apart by opposing political forces. The world has entered a new Cold War.
Economic sanctions leveled against Russia (and its close ally Belarus) by the West clearly underscores the tearing apart of the global economy, with Russia’s economy increasingly tied to China’s as well as other non-Western countries, like India (which is a major buyer of discounted Russian crude oil). Russia’s and China’s relationships with Iran have also become closer—all three countries are subject to some type of Western economic sanctions, regard the United States as the major security threat, and have authoritarian political systems that have reached out to other non-democratic states, such as Venezuela, Cuba, and Myanmar.
The shifting geopolitical realignment is playing out in the Caribbean in a number of ways. In terms of direct economic contact, the CARICOM-Russian trade relationship is not significant. According to the International Monetary Fund’s Direction of Trade Statistics (DOTS), trade between the Caribbean (including Cuba and the Dominican Republic) is probably under USD $1 billion; with CARICOM members probably below $500 million.
While Russia’s trade presence in the CARICOM Caribbean can be considered marginal in most cases, Ukraine’s is even smaller. Ukraine’s major trade partners are China, Poland, Turkey, Italy, and Germany; Russia was in the top 5 until the 2022 war.
On the foreign direct investment (FDI) front, Russia is a minor player in the Caribbean, with a few exceptions. Russian investment tends to be in areas of the Eurasian country’s strengths: mining and energy. Rusal, the world’s second-largest aluminum company by primary production output, has holdings in Jamaica and Guyana. Although the operational track record of both operations has not been smooth, the company does pay taxes and accounts for some employment (despite labor-management strife in Guyana). Russia’s main economic focus in the Caribbean is Cuba and Venezuela, the former consistently needing Russian help and the latter an oil play. Russian trade and investment may not be dominant compared to China’s role.
Where things are more interesting is in the CARICOM response to the Russian invasion. First and foremost, CARICOM countries were part of the 141 countries (out of 193 member states) at the United Nations that condemned Russia for its invasion in March 2022 (Cuba and Nicaragua joined China and India in abstaining). A majority of Caribbean countries also voted for or abstained from another UN vote to suspend Russia’s membership in the UN Human Rights Council, which passed with 93 in favor, 58 abstentions, and 24 against (including Cuba). However, CARICOM did not approve any joint sanctions against Russia, leaving this up to individual countries.
Second, two key areas came up in terms of actual economic action. A number of Caribbean countries (mainly in the Eastern Caribbean) decided to participate in similar actions by restricting economic transactions on the part of sanctioned Russian entities or individuals. This included the suspension of Citizen by Investment (CBI) programs vis-à-vis Russian and Belarusian applicants.
Offered by a number of countries—such as Antigua and Barbuda, Dominica, Grenada, and St. Lucia—these programs generate significant amounts of capital used to build up resilience or to pay down debt. According to one estimate, Dominica’s CBI program raised over $1.2 billion in revenue, based on 5,284 applications from 2017-2020.
At the same time, the Central Bank of the Bahamas revealed that, as of February 2022, international banks and trust companies under its jurisdiction held $420 million in deposits and $2.5 billion in custody or trust assets with ultimate beneficial owners from or connected to Russia. Accordingly, the Central Bank (in March 2022) issued a directive to Bahamian financial institutions “against doing business with sanctioned persons and entities of Russia and Belarus.”
Two things can be taken from Caribbean actions on the financial front: The region is making efforts to help freeze Russian assets (which hinders the flow of Russian “hot money”), and such efforts are likely to have a negative impact on those sectors in the Eastern Caribbean and the Bahamas that are involved in offshore financial business activities.
While the direct impact of the Russo-Ukrainian War is comparatively small, it is the indirect impact that is squeezing Caribbean economies. One major area that is critical to the Caribbean is food security. Prices for food are on the rise, which can be explained by the role played by Russia, Ukraine, and, to a lesser extent, Belarus in the global food supply. Russia and Ukraine account for 64 percent of world exports of sunflower oil, 23 percent of wheat, and 21 percent of barley.
It is not only food that is affected. Key to food production are the products that go into making fertilizer, something that Russia, Ukraine, and Belarus are significant actors. Russia and Belarus account for 40 percent of total global exports of potash. Russia accounts for 11 percent of the world’s urea exports. Trinidad and Tobago has offered to raise the level of its Urea Ammonium Nitrate (UAN) to the United States. (The Caribbean country is the second largest exporter of UAN to the U.S. after Russia).
The combination of the above puts pressure directly on food supplies and indirectly on food production costs, all of which are inflationary and becoming a problem around the world. For the Caribbean, this translates into the squeezing of food supplies and fueling inflation from rising prices. This development is particularly considering the high level of dependence on food imports throughout the Caribbean, with some countries relying on other nations for over 60 percent of their food. Climate change is only making this worse.
Oil prices are another major issue. The Russo-Ukrainian War has helped push up international oil and natural gas prices. While this development benefits fossil-fuel producers, specifically Guyana, Suriname, and Trinidad and Tobago, it is a blow to the rest of the region. Most Caribbean nations depend on oil for over 90 percent of their electricity generation. Moreover, as the war and sanctions are effectively restructuring the global energy industry, oil prices are expected to remain high, likely above $100 a barrel through the rest of 2022.
The economic landscape for Caribbean policymakers is not encouraging. Economic growth has returned for 2022, but how long will it last? The Russo-Ukrainian War is likely to push Europe into a recession. Considering that Europeans are one of the major markets for Caribbean tourism, this hurts. The inflationary dimension of the Russo-Ukrainian War and the unintended consequences of U.S. green policies in this environment have prompted the U.S. central bank, the Federal Reserve, to raise interest rates by 75 basis points—the biggest hike since 1994. For the Caribbean, this means that the U.S. will either experience an economic slowdown or recession, both of which could put a dent into regional tourism.
Another impact is on the Caribbean corporate sector. Some of the larger companies, such as Grace Kennedy, Goddard Industries, and Massy Group, are going to find the business environment increasingly more treacherous—both at home and in other markets. For example, JP Group in Jamaica currently generates 48 percent of its revenues from its European operations; GraceKennedy has operations in the U.S., and Goddard is closely tied to international travel.
Yet another factor is that external debt burdens in a number of countries are high and most likely unsustainable. Rising interest rates in the U.S. are going to make this more problematic; borrowing will be more expensive, and interest rate-linked debt will rise. These developments constrain the ability of regional governments to protect the most vulnerable segments of their populations from food insecurity, build resilience from the ill effects of climate change, and diversify their economies away from heavy dependence on tourism to broader blue and orange economy strategies.
Possible exceptions to the tough economic landscape are the oil and natural gas producers—Guyana, Suriname, and Trinidad and Tobago—benefiting from higher energy costs. Trinidad could also benefit from the sanctions on Russian urea exports.
Looking ahead, geopolitics for the Caribbean are likely to become more challenging, especially as the conflict in Eastern Europe is likely to continue for some time to come. Outside of Russia’s Ukrainian invasion, the U.S.-China rivalry is not going away, and as the decoupling of Western economies continues, Caribbean nations are facing increasing pressure to pick a side. However, through the last several years of geopolitical and geo-economic shifts, Caribbean leaders have become more proactive in areas such as pushing for greater regional food production, developing orange and blue economy initiatives, and tackling climate change. The Russo-Ukrainian War is one more reason for them to continue pushing for a more economically self-reliant Caribbean. With that in mind, it is worthwhile to conclude with a quote from nineteenth-century Russian playwright and short-story writer Anton Chekhov, “Knowledge is of no value unless you put it into practice.”
Scott B. MacDonald is the chief economist at Smith’s Research & Gradings, Research Fellow at Global Americans, and founding director of the Caribbean Policy Consortium. His latest book, The New Cold War, China and the Caribbean, is forthcoming with Palgrave Macmillan.