CURAAO ECONOMIC OUTLOOK 2010

THE CROSSROAD TO AN AUTONOMOUS COUNTRY WITHIN THE DUTCH KINGDOM

COLOPHON Publisher Island Territory of Curaao For further information Department of Economic Affairs, Island Territory of Curaao, Molenplein z/n Curaao, Netherlands Antilles Tel: (5999) 462 14 44 Fax: (5999) 462 75 90 E-mail: info.dez@curacao-gov.an Internet: www.curacao-gov.an English language correction A Translation Studio Design and Printing Interpress N.V.

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Reproduction of material from this publication is permitted without prior permission, provided that the source is acknowledged

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Contents
PREFACE ............................................................................................................. - 5 EXECUTIVE SUMMARY .................................................................................. - 7 CHAPTER 1 CURAAO S MACROECONOMIC PERFORMANCE ...... - 13 1.1. INTERNATIONAL AND REGIONAL DEVELOPMENTS AND THEIR CONSEQUENCES FOR CURAAO ............................................................. - 13 1.2 MACROECONOMIC INDICATORS FOR CURAAO .......................................... - 22 1.3 LABOR MARKET DEVELOPMENTS IN CURAAO........................................... - 30 1.4 FISCAL & MONETARY DEVELOPMENTS IN CURAAO ................................. - 34 1.5 BALANCE OF PAYMENTS IN 2009 ............................................................... - 37 1.6 SOCIAL ECONOMIC INITIATIVE PROGRAM .................................................. - 40 CHAPTER 2 SECTORAL DEVELOPMENTS IN ACCORDANCE WITH DEFINED FUTURE ECONOMIC COURSE ................................................. - 46 2.1 PRODUCTION SECTORS ....................................................................... - 46 2.1.1 AGRICULTURE, LIVESTOCK, AND FISHERIES ............................ - 46 2.1.2 OIL SECTOR ..................................................................................... - 54 Prospects for Curoil N.V. in 2010 .............................................................. - 59 2.1.3 UTILITIES ......................................................................................... - 60 2.2. CONSTRUCTION ................................................................................... - 64 2.3 TRADE SECTORS.................................................................................... - 66 2.3.1 WHOLESALE AND RETAIL TRADE ................................................ - 66 2.3.2 ECONOMIC ZONES AND E-COMMERCE...................................... - 71 2.4. TRANSPORTATION SECTOR............................................................... - 76 2.4.1. AIRPORT .......................................................................................... - 76 2.4.2 HARBOR ............................................................................................ - 82 2.5 TOURISM ................................................................................................. - 85 2.6 FINANCIAL AND BUSINESS SERVICES SECTOR ............................. - 90 2.6.1.COMMERCIAL BANKS .................................................................... - 90 2.6.2 INTERNATIONAL FINANCIAL & BUSINESS SERVICES ............... - 93 2.6.3 INSURANCE ...................................................................................... - 96 2.7 HEALTH CARE ........................................................................................ - 98 CHAPTER 3 THE CROSSROAD TO AN AUTONOMOUS COUNTRY WITHIN THE DUTCH KINGDOM .............................................................. - 108 APPENDICES : ................................................................................................ - 115 APPENDIX I: METHODOLOGY ................................................................ - 115 APPENDIX II: LIST OF TABLES & FIGURES .......................................... - 116 APPENDIX III: LIST OF ABBREVIATIONS ............................................. - 118 -

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PREFACE
The Curaao Economic Outlook is an annual publication of the Department of Economic Affairs. This 2010 edition provides an overview of macroeconomic and sectoral performance in 2009, and in addition discusses the prospects for the Curaao economy in 2010, underlining some key policy intentions for the near future as well as expected opportunities and risks. This publication was prepared by a team of policy advisors at the Department of Economic Affairs, with contributions by several government institutions, sectorspecific associations and private companies, which shared their latest data and knowledge with the Department of Economic Affairs.

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EXECUTIVE SUMMARY CURAAO MACROECONOMIC PERFORMANCE

In 2009, the overall macroeconomic performance of Curaao dropped slightly by 0.2 percent in real terms as compared to 2008. This decline can be attributed mainly to the negative development in the export sector, primarily in tourism. The decline in investments in 2009 was another factor that impacted the overall macroeconomic performance negatively. The islands consumer-price index remained at a low level in 2009, owing to the moderate international demand for commodities worldwide. In the optimistic scenario, the macroeconomic outlook for 2010 shows a 0.7percent growth in gross domestic product in 2010. Nevertheless, the increase in private consumption, combined with the higher private investments, will lead to an increase in business production. All by all, the contraction in the export of goods and services, combined with moderate increases in investments and private consumption, will lead to a marginal increase in gross domestic product according to the pessimistic scenario. The number of people employed in 2009 remained nearly unchanged as compared to 2008. A remarkable development on the labor market is that, while the number of employed persons barely increased, the number of inactive ones increased by more than 750. The number of unemployed persons, however, declined sharply by 441 persons, which caused the unemployment rate to plummet to 9.7 percent of the labor force. The public finances of the Island Government of Curaao reflect a budget surplus of NAf. 90 million. Total actual government revenues in 2009 were NAf. 16 million lower than initially estimated. On the other hand, the total government expenditures were NAf. 99 million lower than estimated. This budget underspending was mainly caused by lower expenses on the budget items interest payments and goods and services. Expenditures for interest payments were NAf. 23 million lower, made possible by advance payments received from the Netherlands in connection with the debt-relief program. The financial position of the Island Territory of Curaao improved in 2009. The total debt at the end of 2009 recorded a decrease of NAf. 261.9 million compared to the end of 2008, reaching a level of NAf. 2,647.8 million. During the first nine months of 2009, the BNA conducted a laid-back monetary policy. The main monetary policy instrument of the BNA, the reserve requirement, was reduced monthly, reaching a level of 11 percent. At the end of 2009, net foreign assets recorded, an increase of 24.3 percent compared to December of 2008. This

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increase was attributable to increases in both the commercial banks and the Central Banks net foreign positions. In 2009, the net domestic assets registered a decrease of 0.7 percent compared to 2008. This decrease was a result of the declined demand for liquid assets by the governments due to the implementation of the debt-relief program. In 2010, the monetary policy will remain mainly focused on maintaining the external stability of the Netherlands Antilles. Therefore, policy adjustments will depend on the expected monetary union formed between St. Maarten and Curaao. In 2009, the current account on the balance of payments showed a deficit of NAf. 699.3 million. This is an improvement in the current account of approximately NAf. 891 million compared to 2008. The improvement in the current account can be ascribed mainly to the increase in current transfers from the Dutch government in accordance with the debt-relief program. In line with the worsening current account, the net foreign debt of the private sector increased by NAf. 873.7 million in 2009, albeit at a slower pace compared to 2008. As a result of developments in the current, capital and financial accounts in 2009, net foreign reserves expanded by NAf. 535.3 million compared to 2008. For 2010, we expect the current account deficit to stay at about the same level as in 2009, as a result of, i.a., substantial capital inflows resulting from the Dutch debt-relief program for the Netherlands Antilles. The Social Economic Initiative (SEI) was founded with the goal to introduce a number of projects, reforms and measures to be implemented in the period of 2008 through 2010, with a possible extension into 2011, to ensure sustainable improvements in the economic structure and social backlogs on Curaao. Within the framework of stimulating economic progress, a set of policy fields have been defined. Each potential project/initiative must contribute to restructuring the economy and fit into at least one of the indicated policy fields in order to qualify for the SEI fund. The policy fields are: research on long-term economic development, improvement of the investment climate by restructuring regulations and procedures, promotion of entrepreneurship and investments in the infrastructure on behalf of strong economic development.

SECTORAL DEVELOPMENTS
The number of actors in the Agriculture, Livestock and Fisheries sector remained approximately the same as compared to 2008. Trade in local agriculture products diminished in 2009 as compared to 2008. In 2009, the Department of Agriculture,

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Livestock and Fisheries invested NAf. 175,000 in a new tractor. In addition, there were NAf. 20,000 in private investments, financed by OBNA. In addition, the Department of Agriculture, Livestock and Fisheries invested NAf. 200,000 in the import of purebred animals. Besides the investments made by the Department, there were also private investments financed by OBNA for an amount of NAf. 10,237. The average price of fish increased by approximately NAf. 3,- per kilo in 2009, compared to 2008. This is a result of the increase in fuel prices The year 2009 was an interesting one for the local oil sector due to the many challenges encountered. The economic crisis had a negative impact on the performance of the local refinery. During 2009, the oil refinery exported oil products to several countries. The year 2010 is expected to be a turbulent year for the local oil refinery as a result of the many problems with the CUCs (BOO) energy supply. In 2010, Curoil NV launched the sale of Low-Sulfur Gasoil. Despite the huge competition Curoil N.V. has been encountering in the aviation sector, preliminary figures indicate an 18.8-percent growth in jet-fuel sales during 2009, in comparison with 2008. In 2009, there were some interesting developments in the utility sector. Aqualectra started the process of refinancing the company. Another important development regards community awareness. People are more willing to work towards energy saving and the use of alternative energy. In December of 2009, Aqualectra signed a power-purchase agreement with NU Capital for the delivery of 30 MW. This agreement means an expansion of the two wind parks that are currently producing energy. For 2010, the government is working on an energy policy which will make it possible to develop the use of renewable energy in Curaao. Contrary to international developments, the overall conclusion is that 2009 was a positive year for the local construction sector. Several major projects were completed, including the Hyatt Hotel, a new wing at the local university, a new building for one of the largest local banks and several expansions of hotel complexes. The number of permits issued in 2009 was somewhat lower, with a total value below that of the previous year. The local wholesale market recorded a 5-6 percent decrease in annual sales in 2009 as compared to the peak performance in 2008. According to players in the retail sector, there are still possibilities to enter the food-retail market on the island. The key to enter the market is to have a better approach to sales and product differentiation.

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The reconstruction of another building at the Free-zone Koningsplein is in full swing and scheduled for completion in November of 2010. A new access-control system was also introduced to cater to security needs in connection with the visitorenrollment program at the free-zone. In 2009, Curinde invested about Naf. 7 million in the Koningsplein Free-zone. In 2010, Curinde will invest at least Naf. 5 million in the Koningsplein Free-zone. Passenger traffic at Hato International Airport set an all-time record in 2009, with a total of 1,465,898 passengers. In malice of the positive developments in passenger travel, caution is advisable, considering the dramatic reduction in cargo, by 20 percent. However the general aviation at Hato shows a decline of 24 percent compared to last year. The focus of the local aviation industry for the coming year(s) will be on the development of code-share partnerships with much bigger and stronger companies, like the latest Insel Air Gol code share deal. The harbors overall performance for 2009 in comparison to 2007 shows a decline of 5.7 percent and in comparison to 2008, a decline of 8.9 percent in harbor activities. The opening of the new Panama Canal also offers opportunities to Curaao Ports Authority (CPA), which has already started a new company in Panama to offer tugboat services. For 2010, the CPS expects a 2 to 3 percent decline in freight cargo. This is due to the strong competition by the free-zone in Panama, the completion of large construction projects and the tourism sectors decline. The CPA expects cruise-ship calls to decline from 234 in the year 2009 to 231 in 2010. The amount of passengers will also decline form 423,088 to 383,921. In 2009, the tourism sector recorded more than 420,000 cruise passengers. However, the predicted number of cruise passengers for 2010 will be almost 40,000 short of last years total. Partly as a result of the increase in the number of rooms, the average hoteloccupancy rate went down from 85 percent in 2008 to 75 percent in 2009. In 2009, arrivals from Europe totaled 148,450, of which 126,209 were from the Netherlands. Arrivals from the North-American market amounted to 42,055 in 2009, translating to a 17-percent drop as compared to 2008. Fortunately, the first quarter of 2010 proved to be a turnaround for the US market, marking a 31-percent increase in arrivals. Arrivals from the South-American market dropped, resulting in a loss of one third of arrivals. In addition, the total arrivals from the Caribbean region dropped by 12 percent in 2009. By the end of 2009 and into the beginning of 2010, the local commercial banks, as the main treasury holders, were confronted with a major liquidity surplus as a result

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of the matured government bonds being paid out. This surplus put pressure on interest rates, which lead to a reduction in interest rates on deposits and loans. With the new constitutional changes coming up, government authorities are looking into introducing a new banking regulation on deposits. Each bank would have to make a standard deposit with the central bank for security purposes. Despite the economic challenges, the banks are looking very optimistically at the year 2010 and expect better results than those for 2009. As of the end of 2009, the Netherlands Antilles appears on the OECDs white list, which has a positive impact on the international financial sector. Another important development for the international financial sector is the official launching of the Dutch Caribbean Securities Exchange (DCSX) in 2010. Therefore, at the end of 2010, the Financial Action Task Force (FATF) will screen the local financial services sector. The upcoming constitutional changes, with the proposed debt relief, will make it tougher for insurance companies to find suitable investment products on the market. Internationally, central banks act as watch dogs of the insurance industry for the sole reason that, even though insurance companies are not as volatile as banks, they must remain fundamentally strong to make sure that their basic functionthe orderly transfer of risk from client to insurercontinues without interruption. The rising costs in the healthcare sector in Curaao require new measures to achieve a manageable system of purchasing health care. This need keeps growing because of the aging population, which drives up healthcare spending through the demand side, the shrinking base of the workforce that pays for the costs and the open-end nature of the insurance policy (with no personal liability or maximum consumption) for the different groups of insured people with few incentives to save on costs.

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CHAPTER 1 CURAAO S MACROECONOMIC PERFORMANCE

1.1. INTERNATIONAL AND REGIONAL DEVELOPMENTS AND THEIR CONSEQUENCES FOR CURAAO Following the deepest downturn in recent history, global economic recovery is off to a strong start, but proceeding at different speeds in the various regions. According to the World Economic Outlook (WEO) of the International Monetary Fund (IMF), released in July 2010, world economic growth is expected to reach 4 percent, a rather positive output as compared to 2009 with its actual contraction of 0.6 percent. In most advanced economies, the recovery is expected to remain sluggish by past standards, whereas in many emerging economies, activity is expected to be relatively vigorous, largely driven by buoyant internal demand. Supporting the recovery are easing flows, a turn in the inventory cycle and, importantly, growthstimulating policies. Unhealed financial systems and weak public or household balance sheets are, however, holding back recovery. U.S.: Recovery Driven by Stimulus vs. Job Creation A stimulus-led recovery is on the way in de U.S., but private demand remains soft. Substantial monetary and fiscal easing, alongside other policies aimed directly at the financial and housing sectors, has contributed to growth. Consumption rose slightly in the fourth quarter of 2009 (2009Q4) as households continued to rebuild wealth; reduced inventory draw downs contributed to more than half of growth. During the same period, net exports also made a modest positive contribution to growth, as the rebound in global trade and recovery in partner economies boosted exports. The labor market remains unusually weak. Since the start of the crisis, more than 7 million jobs have been lost and 8.8 million people are involuntarily working parttime (WEO, July 2010). The rate at which jobs are being lost has slowed significantly, but employment growth remains negative and the unemployment rate reached 10 percent by the end of 2009, although it decreased marginally during 2010 Q1. This is a good indication. After all, the sustainability of any economic recovery comes down to job creation, which in turn gives a boost to consumer spending. Financial-market strains have continued to ease, but credit conditions remain on the tight side, particularly for small and medium-sized enterprises with little access to capital markets. Some risks to the U.S. economy are the relatively high debt levels for the household sector and government debt levels that are high, rising and approaching levels that are unsustainable. Moreover, the expected healthcare reforms entail significant increases in government spending and potentially even higher levels of debt, while uncertainty over the passage of environmental legislation and future tax increases

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aimed at deficit reduction pose additional risks to the recovery. Furthermore, not all banks balance-sheet problems have been addresseda few important ones remain. As long as the U.S. is running large budget deficits coupled with a zero interest rate monetary policy, the dollar can be expected to keep declining in value. A declining dollar will help to rebalance the global economy away from its dependence on U.S. consumption for growth, and a weaker dollar puts upward pressure on all commodity prices, as a result of a flight to safety. Since spiking to $150 a barrel in the summer of 2008, oil prices remain a risk to both the U.S. and the global economy. Political unrest in Iran creates an unstable and uncertain outlook for oil coming from the Middle East (Global Economic Outlook, Deloitte1st Quarter 2010). Despite these problems, 2010 has the potential to be a better year as compared to 2009, with sales growth returning and profitability performance surprising many businesses on the upside. In the WEO, July 2010, U.S. GDP for 2009 was set to -2.4 percent (decline in output), whereas projections for 2010 indicate a 3.1-percent output growth. The removal of the policy stimulus will subtract from growth, which will moderate to 2.6 percent in 2011. Unemployment is projected to remain high in 2010 at 9 percent, before declining to 8 percent in 2011 as employment growth picks up, and inflation is expected to remain subdued at 2 percent in 2010 and 1 percent in 2011, given continued economic slack. Europe: Fragile and Diverse Recovery1 Europe was one of the hardest-hit economies during the global crisis, having entered the crisis with substantial imbalances. Unemployment in Europe (10 percent) has risen in the last two years by 3 percentage points. The continent is coming out of recession at a slower pace than other regions, and the recovery varies per country within Europe. Forces holding back the recovery in Europe include sizable fiscal and current-account imbalances in several Euro-area countries with potentially negative spillover effects to the rest of Europe, concerns about sovereign solvency and liquidity in Greece that threaten the normalization in financial market conditions, unresolved problems in the banking sector, persisting external financing constraints, vulnerable household and corporate balance sheets and financial-sector deleveraging. Factors supporting the ongoing recovery in Europe are the turn in the inventory cycle, the normalization of global trade and forceful policies.

Source: World Economic and Financial Surveys, World Economic Outlook, April 2010

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Europes growth performance is expected to be modest, at 1.3 percent in 2010, and is projected at 1.9 percent for 2011. However there are differences in outlook across the region.In advanced Europe, recovery is projected to be gradual and uneven among euro-area countries. The recovery is expected to be moderate in Germany and France, where export growth is limited by external demand, investment is held back by excess capacity and credit constraints and consumption are tempered by higher unemployment. Smaller euro-area economies, where growth is constrained by large fiscal or current-account imbalances (Greece, Ireland, Portugal and Spain) are coming out even more slowly. Outside the euro area, the prospects for recovery in advanced Europe are similarly diverse. In the UK, the recovery is projected to continue at a moderate pace, with previous depreciation bolstering net exports even as domestic demand is likely to remain subdued. In emerging Europe, growth prospects also vary widely. Economies that weathered the global crisis well (Poland) and others where domestic confidence has already recovered from the initial external shock (Turkey) are projected to rebound more strongly, helped by the return of capital flows and the normalization of global trade. Economies that faced the crisis with unsustainable domestic booms that had fueled excessively large current-account deficits (Bulgaria and Lithuania) and those with vulnerable private or public-sector balance sheets (Hungary, Romania, Baltics) are expected to recover more slowly, partly as a result of limited room for policy maneuvers. The euro is depreciating due to lack of confidence in the financial markets and astronomical budget deficits in some areas. Two downside risks around the outlook in Europe are: first, market concerns about sovereign liquidity and solvency in Greece that could turn into a full-blown sovereign-debt crisis leading to some contagion if unchecked; and second, the possible dampening in growth as a result of adjustments in fiscal and currentaccount imbalances in peripheral economies and, if delayed, a protracted process punctuated by occasional crises. The most important task ahead is to strengthen the policy framework to promote better adjustment mechanisms in good and bad times. Regarding fiscal policy, credible commitments should be made to debt sustainability (Greece, Ireland, Portugal and Spain) while proceeding with the planned stimulus measures in 2010, where feasible (Germany). Monetary policy should remain highly accommodative. Inflation pressures remain subdued (about 1 percent in the euro area) and it is appropriate to keep interest rates low to support activity. Issues in the financial sector call for completion of the restructuring and recapitalization of vulnerable financial institutions. In addition these financial issues call for stabilizing funding and reevaluating bank models.

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CIS: Moderate yet Diverse Recovery The Commonwealth of Independent States (CIS) 2 is emerging from the recession at a moderate pace, although economic prospects across the region differ considerably. Factors in favor of recovery are higher commodity prices (oil, gas, metals) which are supporting production and employment in commodity-exporting economies in the region (Uzbekistan, Turkmenistan), the normalization of global trade and capital flows, the turnaround in real activity in Russia and its beneficial effect on the rest of the region in terms of the external demand for employment, capital and goods from these economies, supporting IMF programs and expansionary domestic policies fostering domestic demand. Negative forces holding back recovery include the lingering vulnerability of the financial sector (in Russia) and heavy dependence on external financing. Real activity in the CIS is projected to expand by 4 percent in 2010, before moderating slightly to 3 percent in 2011. Risks to the outlook in the CIS are broadly balanced. For most CIS economies, growth prospects remain highly dependent on the speed of recovery in Russia, which could surprise in either direction. Asia: Robust Recovery and Recoupling The recovery in Asia has been more balanced than elsewhere, with output growth in most economies being supported by both external and domestic demand. The factors supporting this recovery include the rapid normalization of trade, the bottoming out of the inventory cycle which is boosting industrial production and exports, a restart of capital inflows into the region and a resilient domestic demand. This resilience is partly due to the stronger balance sheets (private and public) in place at the onset of the crisis, a healthy fiscal position (national debt in Asian countries is generally below 60 percent of the GDP), very limited dependence on external borrowing, substantial savings held by consumers in these economies, which they could draw upon to finance higher consumption in response to the fiscal stimulus program, the quantitative easing that pushed up asset pricesthus quickly restoring the asset position of households and building consumer confidencethe fact that the financial sector remained healthy and the implementation of strong and timely countercyclical policy responses. Asias GDP is projected to grow by 6.9 percent in 2010 and 7 percent in 2011, although significant differences remain within the region. At one end of the spectrum are economies with an extreme dependence on exports, primarily Malaysia and Singapore, along with Thailand and Vietnam. At the other extreme are India and Indonesia, which are driven more by domestic demand than by exports. Somewhere in the middle are China and South Korea though
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Azerbaijan, Kazakhstan, Russia, Turkmenistan, Mongolia, Uzbekistan

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dependent on exports for growth, they have large domestic economies. The Philippines has some unique characteristicsits economy is highly dependent on remittances, which constitute nearly 10 percent of the GDP. Australia and New Zeeland are commodity exporters benefiting from the pickup in commodity prices, with a relatively strong domestic demand. In Japan, exports have helped support a tentative recovery, but domestic demand is likely to remain weak as a result of several factors, including the new spell of deflation of the yen, continued excess capacity and a weak labor market. The prospect for China, the third-largest economy after the U.S. and Japan, is very promising. Most economies in the Asia-Pacific3 region benefited from Chinas massive fiscal and monetary stimulus program. Australia was prevented from falling into a recession thanks to rising commodity exports to China. The Chinese economy accelerated due to rising state investment in fixed assets and growing private consumption. Its imports recovered faster than its exports, narrowing the trade deficit and providing a growing market for other Asian economies. China emerged as Vietnams largest trade partner in 2008 and the second-largest trade partner of Thailand and Singapore (in part due to the China-ASEAN Free Trade Area), and overtook the U.S. as the biggest market for Japanese exports in February of 2009. The CAFTA creates the worlds third-largest FTA, with nearly 6 trillion dollars in combined GDP and zero tariffs on 90 percent of the traded goods. China has also emerged as a key investment partner, having invested nearly 2.2 billion dollars in ASEAN economies in 2008. Dependence on China, in fact, may be emerging as the primary risk for the newly industrialized Asian economies 4, although integration with India is also on the way with the India-ASEAN free-trade agreement signed in August of 2009. The other trend that will likely gain strength is the growth in EUASEAN trade investment ties. Though integration with the rest of the world will remain a buzzword for emerging Asia 5, the primary focus will likely be on diversification of trade to reduce risks. No country would want to become overly dependent on a single economy, whether it is China or the U.S. The rise of China as a prominent market for ASEAN economies, however, looks unavoidable if the rest of the world continues to show only slow growth. Varied policy challenges face the regions economies. For those that have depended on exports to drive growth, the primary challenge will be to deal with the slowing demand from mayor trading partners like the U.S. and effect a durable rebalancing toward domestic sources of growth, possibly by means of stimulus measures, which have played a major role in the recent strength of domestic demand in many of the regions economies.

3 4 5

East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself. Hong Kong SAR, Korea, Singapore and Taiwan Province of China. ASEAN, China, India and Newly Industrialized Asian Economies

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In order to keep domestic demand robust, autonomous private demand will have to strengthen further. Most of the economies are expected to grow rapidly in 2010. The pace will be set by China, followed by India. Indonesia has the potential to surprise on the upside. Growing integration between Asian economies and rising domestic consumption due to fast-paced growth could prove beneficial in correcting the global imbalances in trade. It could also benefit the developed world by increasing their exports to the Asian economies. More importantly, it would imply a diversification of risks. This could be seen as a movement toward recoupling instead of decoupling. Middle East and North Africa (MENA): Recovery Due to Higher Commodity Prices and Government Policy The MENA region is growing out of its downturn at a good speed. Factors supporting this recovery are higher commodity prices and external demand as well as government spending programs. Vulnerable financial sectors and weak property markets are holding economies like Kuwait and the United Arab Emirates back. The sluggish recovery in Europe is putting a damper on export growth, workers remittances and tourism revenues in Morocco and Tunisia, although the latest data suggest that these flows are gradually improving. Considering these and other factors, GDP in the Middle East and North Africa is projected to grow at 4 percent in 2010, edging up to 4 percent in 2011. As in other regions, recovery prospects vary substantially across MENA economies. Among oil exporters, the strongest performer is Qatar, supported by continued expansion in natural-gas production and large investment expenditures. Saudi Arabia and Kuwait are expected to grow thanks to sizable government infrastructure investment. In the United Arab Emirates, growth is projected to be subdued, with property-related sectors expected to contract further. In the group of oil importers, Egypt is projected to grow, helped by stimulative fiscal and monetary policies. Morocco and Tunisia will continue to grow, assuming that exports, tourism, remittances and foreign direct investment continue to improve. One risk to this outlook is that a slower-than-expected recovery in advanced economies could dampen commodity prices and tourism. Another is posed by the aftermath of the Dubai World debt crisis. Fiscal policy has played a critical role in cushioning the impact of the global crisis on the region and in supporting its recovery. Government investment programs, especially in infrastructure, should remain in place to boost domestic demand and help cement the recovery. High debt levels, however, constrain the scope for fiscal stimulus in some oil-importing economies. Turning to the external sector, current-account surpluses are expected to widen again as the recovery proceeds. But the recent increases in public spending on non-energy-related sectors should be helpful in diversifying activity toward these sectors, rebalancing regional growth and reducing the regions current account

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surplus. Nonetheless, further efforts are needed to achieve such diversification, which will benefit not only the MENA region but the global economy as well. Africa: Recovery Stronger than After Past Downturns Sub-Saharan Africas (SSA)6 middle income7 and oil-exporting economies8 were hit hard by the collapse in export and commodity markets in 2009. Despite this, the region managed to avoid a contraction in 2009. Its growth is projected to accelerate to 4.7 percent in 2010 and to 5.9 percent in 2011. The regions quick recovery reflects the relatively limited integration of most low-income economies9 into the global economy and the limited impact on their terms of trade, the rapid normalization in global trade and commodity prices, and the use of countercyclical fiscal policies. Remittances and official-aid flows have also been less affected than anticipated by the recessions in advanced economies. Banking sectors have so far proved generally resilient and private capital inflows have resumed into the regions more integrated economies. Shocks from the global crisis hit SSA mainly through the trade channel, with the regions middle-income economies being among the hardest hit. Output in South Africa declined in 2009. Although the rebound in world trade is supporting recovery, South Africas growth in 2010 will be tempered by high unemployment, tight credit conditions and the recent strength of the rand. Strong performance in the non-oil economy allowed Nigeria, the regions largest oil producer, to avoid a substantial slowdown. The recovery of oil prices and stronger global demand will raise growth for oil-exporting economies. In the regions lowincome economies, the slowdown in economic activity was more modest, owing to their more limited trade and financial integration. Growth in a number of the more fragile economies even accelerated last year, reflecting mainly stronger policies and reconstruction assistance following periods of civil conflict, economic instability and previous external shocks. Risks to the outlook in the region include a recovery pattern that gives rise to large swings in commodity prices. Furthermore, official aid flows to the region are subject to downside risks, given the protracted recoveries of major donor economies and political uncertainty in several of the regions economies, particularly in West Africa.

The use of countercyclical fiscal policy in contrast to previous downturns was a welcome development in the region. As private and external demand begin to recover, countries will need to rebuild fiscal room, turning from the near-term objective of stabilizing output to medium-term considerations,
6 Those African countries which are fully or partially located south of the Sahara. It contrasts with North Africa, which is considered part of the Arab world. 7 South Africa, Botswana, Mauritius, Namibia, Swaziland, Cape Verde and Seychelles. 8 Nigeria, Angola, Equatorial Guinea, Gabon, Chad and the Republic of Congo. 9 Ethiopia, Kenya Tanzania, Cameroon, Uganda and Cte dIvoire.

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such as increasing spending on growth-enhancing priorities, including infrastructure, health, and education. Finally, attracting private capital flows will continue to be a major policy challenge. More than a third of economies in Sub-Saharan Africa remain on the margins of international capital markets and dependent on official forms of external financing. For these economies, promoting trade and financialsector development, encouraging domestic savings and investment, raising standards of governance and strengthening institutions are needed measures to help attract private inflows on a sustained basis. For the regions more advanced economies, macroeconomic policy will need to take into account the renewed inflows of foreign capital to avoid overheating10, excessive appreciation11 and asset-price booms (period of rapid economic expansion). Latin America and the Caribbean12: Recovering Faster than Anticipated The LAC region is posting a strong recovery. Output growth in the region is supported by both external and domestic demand. Factors supporting this recovery are accommodative policies, good fundamentals (sound financial systems, solid balance sheets) and higher commodity prices. However, weak external demand for tourism from North America and Europe is impeding growth, especially in the Caribbean, whereas lower remittances are affecting many LAC economies. Against this backdrop, GDP in the LAC region is projected to grow at 4 percent in 2010 and 2011, although prospects vary considerably across the region. Four country groupings can be distinguished: the financially integrated commodity-exporting countries (strong recovery); commodityimporting, tourism-intensive countries (weak recovery); other commodity-exporting countries (subdued recovery) and other commodity-importing countries (subdued recovery). Among commodity-exporting, financially integrated economies are Brazil, with strong private consumption and investment, Chile, supported by highly accommodative policies, a recovery in commodity prices and reconstruction, Mexico, helped in part by the U.S. recovery and Peru (top growth performer), thanks to favorable internal dynamics and high commodity prices. These economies are expected to experience a strong bounce back in growth. Tourism-intensive commodity importers13 are experiencing a weak recovery. These countries were affected by the global financial downturn through their ties with advanced economies like the U.S. and Europe, which on their turn suffered an increase in unemployment. Tourist arrivals declined by double-digit rates in most countries but
Economic situation in which growth is occurring so quickly that economists fear a rise in inflation. This happens when producers are not able to make enough goods and services to meet rising demand, and raise prices instead 11 Increase value of an asset 12 This section is mainly based on the Regional Economic Outlook, Western Hemisphere, May 2010 13 Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Belize, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines.
10

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increased in Jamaica, possibly as a result of support provided by the IMF. Canada, however, provided tourist arrivals owing to its stronger economic performance during the crisis. A modest increase of approximately 5 percent in arrivals is projected for this group in 2010. This, alongside weak foreign direct investment and unemployment hovering around 13 percent, implies a sluggish recovery for 2010. Other commodity-exporting economies in the region are experiencing gentle recovery although there is still considerable variation within this group. For instance, the rebound is projected to be relatively strong in Bolivia and Paraguay, whereas in Venezuela the recovery is expected to be delayed and weak, given the ongoing power shortages. The recovery is also expected to be less strong in other commodity importers. Growth is picking up strongly in the Dominican Republic, Panama, and Uruguay. In El Salvador and Honduras, economic activity finally stopped contracting. Haiti was hit hard by the earthquake with sizable human and economic losses. Credit growth has been sluggish, although banks capital-adequacy ratios remain at comfortable levels. U.S. growth is providing some impetus to exports. However, workers remittances continue to post significant declines, reflecting weak employment in the U.S. The pickup in commodity prices is also a shock to these countries. The average external current-account deficit is projected to widen in 2010. The main downside risks are external to the region, namely the fragility of the recovery in advanced economies and a potential weakness in commodity prices. Upside risks include even stronger internal dynamics, which could attract higher capital flows. Given the regions diverse growth outlook, challenges vary widely across LAC economies. For the financially integrated commodity exporters, the challenge will be managing the upswing of the business cycle. Countries where output gaps are closing more rapidly will need to move to a tightening mode ahead of others. Easy external financial conditions and the resumption of capital inflows pose additional challenges, like the risk of boom/bust cycles. In this context, a policy mix favoring a tighter fiscal stance would be appropriate, helping to mitigate risks from overheating while also stemming currency appreciation pressures. Tourism intensive, commodity-importing countries are challenged by the elevated debt levels and limited access to financing. Efforts to protect vulnerable groups and unlock growth potential through structural reforms should be priorities in the policy agenda. For other commodity exporting countries, policy challenges will include avoiding the perils of pro-cyclicality14, anchoring macroeconomic policies, and regaining access to financial markets. Other commodity-importing countries whose room for macroeconomic stimulus has been exhausted should be prudently saved for downside risk scenarios.

14

Correlates with the general state of the economy.

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Implications for Curaao15 Curaao, being a commodity importer with a relatively substantial tourism sector, has also been indirectly affected by the global financial crisis. Partly as a result of the crisis and its effects on developments in the tourism sector, investment and export in 2009 have been negatively affected. On the upside, Curaao will soon be in a unique position due to its new autonomous status within the Dutch Kingdom. The Netherlands has agreed to implement debt relief and cancel late payments, subject to a few conditions. As a result, banks have excess liquidity and are providing personal, mortgage and small business loans against competitive interest rates. In 2009, the Island Government recorded a budget surplus after consecutive years of deficit. This is partly due to the introduction of a Financial Supervision Commission. Moreover, some projects are being executed as part of the Social Economic Initiative 16, contributing to sustainable economic development and reducing social disadvantages on the island. The unemployment rate in 2009 (CBS) was 9.7 percent as opposed to 10.3 percent in 2008, continuing the downward trend seen since 2006. In 2009, Curaao was characterized by a relatively moderate inflation of 1.6 percent, considerably lower than the record-high 7 percent inflation in 2008. The real GDP for 2010 is projected to grow by 0.7 percent as compared to the contraction of 0.2 percent of the GDP in 2009.
Sources: Deloitte Research publication, Global Economic Outlook,1st Quarter 2010 Deloitte Research Report, Asia Pacific Economic Outlook, February 2010 Open Arms, The Investors Guide 2010 World Economic and Financial Surveys, World Economic Outlook, April 2010 World Economic and Financial Surveys, Regional Economic Outlook, May 2010, World Economic Outlook Update, January 2010 Websites: www.cbs.an

1.2 Macroeconomic Indicators for Curaao This paragraph presents an overview of the macroeconomic developments based on preliminary figures of the national account and an annual business questionnaire made by the Department of Economic Affairs. The macroeconomic analysis will be carried out with the Curalyse macroeconomic model. The figures presented in the table of main macroeconomic indicators are a combination of actual figures and estimates made by the Department based on assumptions, and are therefore categorized as preliminary. The figures for 2006,
15

Data from the Central Bureau for Statistics (CBS), the Curaao Tourist Board (CTB) and Open Arms, The Investors Guide 2010 16 Data from the Central Bureau for Statistics (CBS), the Curaao Tourist Board (CTB) and Open Arms, The Investors Guide 2010

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2007 and 2008 are actual, while those for 2009 are estimates. The actual figures presented in this publication may be slightly different from those published in 2009 for the years 2007 and 2008, owing to the fact that those figures where estimates made by our Department. In addition to the review of 2009 that will be presented in the following section, the Department will also present two economic scenarios: an optimistic economic development and a more realistic economic development. Macroeconomic Review 2009 The overall macroeconomic performance for Curaao in 2009 contracted slightly by 0.2% in real terms as compared to 2008. This decline can be attributed mainly to the negative development in the export sector, primarily in the tourism sector. The decline in investments in 2009 was another factor that impacted the overall macroeconomic performance negatively. The islands consumer price index remained at a low level in 2009 owing to the moderate international demand for commodities worldwide. According to the preliminary figures of the Bank of the Netherlands Antilles and the questionnaire of the Department of Economic Affairs, private investment declined by 8% in 2009. This contraction can partially be ascribed to last years decline in building permits issued and the related estimated values. In addition to the aforementioned, a great part of the major tourism-related investments have been made in 2008. The international economic development, caused, among other things, by the financial crisis, has also led to a reduction in the number of stay-over visitors in 2009, which was one of the factors that contributed to the postponement of some tourism projects. According to our estimates, the export of goods and services declined by 5% in 2009. The main reason behind this is the decline in tourism in terms of stay-over nights and visitors, mainly in the last quarter of 2009. Another occurrence that has further strengthened this negative trend in exports is the decline in income generated by the offshore sector. Besides, the real-estate sector, which in 2007 and 2008 showed a significant increase, also suffered a reverse in 2009, despite the high exchange rate of the euro versus the dollar. The aforementioned is caused by the negative impact of the international financial crisis worldwide, combined with the economic reverse of the Dutch economy in 2009. According to figures provided by the Bank of the Netherlands Antilles, private loans and mortgages increased by 6 and 36 percent respectively in 2009 as compared to 2008. The aforementioned increase led to the 0.3-percent rise in imports in 2009, due to a 3-percent increase in consumption as compared to 2008. The figures provided by local banks show a 5-percent increase in business loans. The rise in the number of loans by the business sector did not translate into investments by this sector in 2009. This can partially be ascribed to the decline in visitor numbers in the

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tourism sector, which led to skepticism among investors. Some investments may still be carried out, depending on developments in the first half of this year, mainly within the tourism or tourism-related sectors. Given the estimated decrease in exports and investments, combined with the marginal increase in private consumption, the real GDP is estimated to contract by 0.2 percent in 2009 as compared to 2008. The decline in gross domestic product will lead to an unchanged unemployment as compared to 2008.

Table 1.1
Population and employment Total population Labor force Employed labor force Unemployment rate (%) Nominal figures Curaao (in millions) Export of goods and services Import of goods and services Private consumption Private investement Real GDP Volume mutation (%) Export of goods and services Import of goods and services Private consumption Private investement Real GDP Price mutation (%)

Key Economic Indicators

2006 135,250 60,981 52,050 14.6 2,789 3,423 2,918 1,282 4,390 8.3 6.4 4.5 -5,1 1,5 2007 137,124 61,708 54,049 12.4 2,875 3,789 3,327 1,410 4,666 0.1 7.5 10.7 6,8 3,5 2008 138,642 63,021 56,535 10.3 3,382 4,564 3,713 1,641 5,080 10.0 12.7 4.4 8,9 2,2 6.9 200917 138,564 62,627 56,582 9.7 3,211 4,576 3,826 1,510 5,072 -5.0 0.3 3.0 -8,0 -0,2 1.6

Inflation 3.1 3.0 Source: Macroeconomic model Curalyse, Department of Economic Affairs

Macroeconomic Outlook This paragraph presents a forecast of the macroeconomic developments, taking into consideration expected developments within the main sectors and the implementation of the economic reforms mentioned in the Social Economic Initiative (SEI) policy paper, as well as other highly necessary reforms that must be carried out within the framework of the SEI, aimed at jumpstarting the economy. To
17

Estimated figures

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achieve this, huge sums will be invested in, among other things, the islands infrastructure. Owing to the uncertainties regarding Curaaos economic development in 2010, the Department has chosen to discuss two possible economic scenarios. The uncertainties regarding the economic development of the local economy are listed below: - The realization of the autonomous status within the Dutch Kingdom by October 10, 2010; - The implementation of the economic reforms as mentioned in the SEI report; - The macroeconomic developments of our main business partners (trading partners); - The elimination of red tape within the government, with emphasis on services provided by government entities. In order to understand the magnitude of the economic effects for each scenario, the Department made use of the Curalyse macroeconomic model to calculate a baseline reference path for the period 2010 - 2011. With regard to the reference path a laissez-faire or unchanged policy is used as basic assumption for the coming year, to get a general impression of the economic impact. The baseline scenario is used as a reference path in order to be able to measure the economic effects in the other two scenarios. Baseline Scenario This section presents the assumptions on which the baseline scenario is based. As mentioned in the previous section, the baseline scenario, against which the other two scenarios are measured, assumes continuity in policy. The assumptions presented below are for 2010 and 2011. In order to understand the economic effect in the baseline scenario, it is imperative to carefully read the assumptions presented below, since the economic results presented must be interpreted in this context. The assumptions regarding the baseline scenario are as follows: Overall stay-over nights in 2010 will decline by 5 percent compared to 2009, and increase slightly by 2 percent the following year as compared to 2010. The main reason behind this assumption is that the Venezuelan market will keep shrinking until reaching the level of 2007, and then stabilize. In 2011, the American and Dutch markets will continue to grow and partially absorb the decline in the Venezuelan market; The decline in the number of visitors, combined with the larger room inventory in 2009, will lead to a postponement of investments in new room inventory in 2010. This will lead to a 4-percent decrease in investments in 2010 as compared to 2009. The assumption for 2011 is that the planned investments in room inventory for 2010 will partially shift to 2011.

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However, owing to the fact that this is a baseline scenario, a conservative 2percent investment rate has been used; The investments that must be carried out within the framework of the SEI will be neglected; The effect of the reform measures that must be implemented within the framework of the Social Economic Initiative will be neglected; The financial agreement between the Dutch and Antillean governments within the framework of the Commission Financial Supervision regarding the debt relief is being implemented; The Island Territory of Curaaos budget deficit will equal NAf 17 million in 2010, and NAf. 2 million in 2011; Exports in the non-tourism-related sectors will remain at the same level for the coming years due to the expected substantial increase in bunkering and storage activities.

Macroeconomic Impact in the Baseline Scenario This section presents the economic results based on the aforementioned assumptions. The economic contraction in 2010 will lead to an increase in unemployment in 2010, as well as an aftereffect in 2011. The aforementioned, combined with a further contraction in stay-over nights in the base scenario, will lead to a further shrinking in consumption. The decline in stay-over visitors will have a negative impact on the export of goods and services, since export depends heavily on tourism. Business production will suffer a contraction caused by a decline in private consumption. The contraction in production, combined with the negative mutation in the number of visitors, will lead to a decrease in business investments in the baseline scenario. The results of the decline in visitor nights, strengthened by a shrinking consumption and falling investments, will lead to a 1.5 percent contraction in the real gross domestic product in the baseline scenario. The consumption price index of the baseline scenario is assumed to increase by 1.7 percent as compared to the previous year (2009).

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Table1.2
YEAR

Baseline scenario
2010 2011

Key figures for Curaao Prices, % change per year Export price 2.5 Wage-rate business 2.4 Consumption price 1.7 Quantities, % change per year Mutation tourism days -5.0 Exports -3.1 Imports -2.3 Private consumption -1.2 Investments by enterprises 2.0 Production by enterprises -1.7 Real growth GDP -1.5 Employment of enterprises -1.2 Number*1000 Employment by enterprises -0.5 Number of unemployed 0.5 Value in millions NAf Financial surplus public sector 221.2 Source: Macroeconomic model Curalyse, Department of Economic Affairs

1.3 2.2 1.3 2.0 1.0 0.2 0.7 0.4 0.5 0.5 0.1 0.0 0.3 204.7

Macroeconomic Outlook for 2010 This section presents the expected macroeconomic developments for the years 2010 and 2011, based on an optimistic as well as a pessimistic scenario for 2010. Both scenarios are based on the information obtained by sector experts during several interviews. This information has been transformed by the Department in assumptions used as inputs for the Curalyse macroeconomic model. The assumptions presented below are the same for both years, unless otherwise mentioned. The assumptions used in the optimistic scenario are as follows: The overall length of stay of stay-over visitors will increase by 2 percent in 2010 and by 7 percent in 2011 as compared to the previous year; The number of active working population entering the market each year is assumed to be around 1000 taking into consideration the graduated; The implementation of the remaining projects within the framework of the Social Economic Initiative (SEI) implies an investment of NAf. 60.5 million; it is assumed that NAf. 40 million will be invested in 2010, and the rest in 2011; The government budget will show at least a zero deficit in both years, while the committed investment of NAf 62 million within the framework of the SEI will be carried out as planned. This investment will be equally spread over the two years;

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Private investments in 2010 will reach the 2007 level, meaning that some improvement will be seen, but still below the 2008 level. Taking into consideration the increased private and business loans in 2009; In 2011, private investments will once again reach their 2008 level; Government consumption is assumed to increase gradually, owing to the financial room obtained as result of the debt relief received in 2009; The mutation of import prices will diminish as result of the anticipated lower consumption price index of the main trading partners of Curaao; Exports in the non-tourism export sector will increase at the same pace as in 2009, due to the expected increase in bunkering and storage activities carried out by Curoil. In 2011, the export of non-tourism sectors will grow at a moderate pace of 1 percent as compared to 2010 A slight increase of 1 percent is expected in 2010 in the number of cruise passengers visiting the island as compared to 2009, while in 2011 the number of cruise passengers visiting the island will remain at the same level as in 2010.

Optimistic Scenario: Scenario for 2010 The results based on the above-mentioned assumptions are presented in table 1.3. The expected increase in business investments, as well as government investments within the framework of the Social Economic Initiative, will lead to a consumption increase in 2010. The 2-percent increase in visitor nights in 2010 will also contribute to the increase in private consumption that year. Unemployment will decline, leading to an increase in total earnings, which has also contributed to the increase in consumption. The mitigated growth on the number of visitor nights has, despite the increase in the non-tourism export, not been enough to prevent contraction of 0.1% of the export. Business production will rise owing to the investment expansion, the expected growth within the tourism sector and the increase in private consumption. A slightly higher consumption-price index (2.1) is expected for 2010 as compared to 2009. The above-mentioned development, combined with a lower consumptionprice index will lead to a 0.7-percent growth in the 2010 gross domestic product in the optimistic scenario. The number of unemployed has slightly increased despite the enlarged employment partially owing to the graduated entering the market. 2011 Scenario For 2011, only one scenario has been calculated, considering that a great majority of the sectors were not able to provide the information needed by the Department to present two scenarios. Based on the information provided and taking into consideration the above-mentioned assumptions, the following economic impact can be expected.

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In 2011, the wages of the private sector will increase at the same rate as in 2010, due to the moderated economic uplift in the previous year. The increase in stay-over nights, combined with an increase in the non-tourist sector, will lead to a 3.4-percent increase in exports. Private investments are expected to increase, owing to investments made within the framework of the SEI. This increase, combined with the increase in wages and the expected investments, will lead to a more than 2percent increase in private consumption. Business production will increase by 2 percent due to the higher investments and consumption. The increased business production will lead to a 1-percent contraction in unemployment, as well as a rise in the import of goods and services, of more than 1 percent. The expansion of the export, combined with an increase in private consumption and investments, will contribute to a 1.5-percent growth in Gross Domestic Product in 2011 with a moderate inflation of 1.7 percent.
Table 1.3 Optimistic Scenario 2010
Prices (% change) Export price 2.7 Wage rate business 3.1 Consumption price 2.1 Quantities, % change per year Number of tourist days 2.0 Exports -0.1 Imports 1.4 Private consumption 0.7 Business investments 6.3 Business production 0.8 Real GDP growth 0.7 Employment by enterprises 1.3 Number*1000 Employment by enterprises 0.6 Number of unemployed 0.1 Value in millions NAf Financial surplus public sector 290.3 Source: Macroeconomic model Curalyse, Department of Economic Affairs

2011
1.5 3.0 1.7 6.9 3.4 1.6 2.4 0,5 2.0 1.7 1.4 0.6 0.0 267.0

Pessimistic Scenario In addition to the above scenarios, the Department also presents a pessimistic scenario based on some key assumptions that differ from the general assumptions for the optimistic scenario mentioned above. In general, many of the assumptions mentioned for the optimistic scenario also apply to the pessimistic scenario. The following list only includes those that differ for this scenario: Investments made within the framework of the SEI will be 20 percent below in the figures in the optimistic scenario. This assumption is made after taking into consideration which projects have financial requests in

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their final phase and are about to enter the implementation phase, and which are already being implemented; The overall stay-over nights of tourists visiting the island will increase by 1 percent in 2010; Private investments will be 20 percent below the optimistic scenario, back to NAf 24 million instead of NAf. 30 million.

The result of this scenario is presented in table 1.4. The increased in wages, combined with the 1-percent growth in the tourism mutation as compared to 2009, will lead to a marginal enlargement of 0.3 percent in private consumption. Despite the higher tourism mutation and the export growth in the non-tourism related sector, the export of goods and services will remain more or less at the same level owing to the relatively high export prices. Nevertheless, the increase in private consumption, combined with the higher private investments will lead to an increase in business production. All by all, the contraction in the export of goods and services, combined with moderate increases in investments and private consumption, will lead to a marginal increase in gross domestic product.
Table 1.4 Pessimistic scenario 2010
Prices (% change) Export price 2.7 Wage rate business 3.0 Consumption price 2.0 Quantities, % change per year Number of tourist days 1.0 Exports -0.5 Imports 0.7 Private consumption 0.4 Business investments 5.5 Business production 0.4 Real GDP growth 0.3 Employment by enterprises 0.9 Number*1000 Employment by enterprises 0.4 Number of unemployed 0.1 Value in millions NAf Financial surplus public sector 276.8 Source: Macroeconomic model Curalyse, Department of Economic Affairs

1.3 Labor market developments in Curaao Recently, the Welfare Ordinance was adapted, giving the government department in charge of guiding job seekers to the labor market (Department of Work and Income) more tools to implement their policies. Major changes include the option of (temporarily) reducing or completely denying welfare benefits and requiring

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participation in work-reintegration schemes. The basic principle behind the updated Ordinance is reintegration of job seekers into the labor process, implying that entitlement to welfare benefits should be seen as a temporary condition and that efforts should concentrate on providing or sharpening skills that make job seekers employable. Given this principle, participation in trainings and work-reintegration schemes is mandatory and those addicted to illegal substances are required to participate in rehabilitation programs. According to the Department of Work and Income, there are approximately 4,200 job seekers registered. In addition, there is a total of 5,900 social-security recipients registered at the Department of Work and Income. Unfortunately, only a fraction (less than 20 percent) will be able to (re)enter the labor market after a short intervention (skills training or motivational training). The larger part of job seekers registered at the Department of Work and Income lacks the necessary skills, training and competencies to integrate immediately into the labor market. During 2009, several training and reintegration programs were started which are still being implemented. One major obstacle is the relatively high number of people that fail to complete these trainings. One way to cope with this is to adapt the programs by providing specific services, such as child care and personal coaching. Another shortcoming of the labor market is the prolonged shortage of technical workers in sectors such as construction and tourism. This is especially noticeable at the refinery and the dry-dock company. In the hotel sector especially, the different cooking positions seem harder to fill. The Social Economic Initiative program (SEI) also includes several programs with a direct link to the labor market. One that is particularly interesting in this respect is one project introducing child-care facilities with flexible hours. The opening hours of the child-care facilities will be extended beyond business hours and also include weekends. This projects target group is comprised of single mothers and the target sector is tourism. Another relevant project is Horeca training job seekers which is aimed at training the unemployed for jobs in the tourism industry. On-the-job training and apprenticeships are important parts of this projects approach. Both projects are implemented in close cooperation with the private sector. Also within the SEI is the Knowledge Centre Vocational Training Private Sector Curaao foundation (Kenniscentrum Beroepsonderwijs Bedrijfsleven Curaao), with as main purpose to provide for continuous and permanent consultation between the vocational education system and the private sector in order to qualitatively match supply and demand on the labor market. The Knowledge Centre Vocational Training Private Sector Curaao is a joint initiative of, among others, the hospitality and construction-sector associations in response to the gap between labor supply and demand. However, the Knowledge Centre Vocational Training Private Sector

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Curaaos span of interest covers all economic sectors. The Knowledge Centre Vocational Training Private Sector Curaao acts as an independent counterpart for both the private sector and vocational schools and plays an important role in the process of determining the final qualifications of vocational schools . Results of the Labor-Force Survey Below is a graphical overview of the different unemployment rates. From 2005 on, all the rates have been declining steadily except in 2008, when the youth unemployment rate went up by 1.5 percentage points. Unfortunately, female unemployment remains higher than both general and male unemployment, with a discrepancy of more than 3 percentage points in 2009 as compared to their male counterparts. The youth unemployment rate decreased further during 2009, reaching 24.7 percent but is still more than twice the general unemployment rate, which is already considered high by international standards.
Figure 1.1 Selected Unemployment Rates

45 35 25 15 5

Selected Unemployment Rates

2005 2006 Unemployment rate Female unemployment

2007

2008 2009 Youth unemployment rate Male unemploument

Source: CBS

Table 1.5
Employed Unemployed Labor force Total population Unemployment rate (%) Participation rate (%) Youth unemployment rate (%) Source: CBS, Labor Market Survey 2009

Labor Market Indicators 2005-2009

2005 51,343 11,392 62,735 135,474 18.2 46.3 44 2006 52,050 8,931 60,981 135,250 14.7 45.1 37.8 2007 54,049 7,659 61,708 137,124 12.4 45.0 24.8 2008 56,535 6,486 63,021 138,642 10.3 45.5 26.3 2009 56,582 6,045 62,627 138,546 9.7 45.2 24.7

The number of people employed in 2009 remained nearly unchanged as compared to 2008. The number of unemployed persons, however, declined sharply by 441

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persons, which caused the unemployment rate to plummet to 9.7 percent of the labor force. The labor force dropped by almost 400 persons last year, while the total population declined by almost 100 persons. A remarkable development is that while the number of employed persons barely increased, the survey shows that the number of inactive ones increased by more than 750. This is especially troublesome because the number of Curaao-born workers decreased by 1,059 in 2009, according to CBS data from the Labor Force Survey. On the other hand, workers born in the Netherlands and the rest of the world (except the Netherlands Antilles and Aruba) increased by almost 1,270. A possible explanation, given the negative net migration (-641), can be emigration of local workers. A global trend that is also gaining popularity on Curaao is part-time work. Working part time is very widespread in the Netherlands, even above average as compared to other European nations. Results from a recent survey on part-time work on Curaao conducted by George Consult (a local HR consultancy company) suggest that there is some negative perception regarding this approach to work. Some employers even fear that if they allow some employees to work part time, the majority will follow. Many companies lack policies and procedures on part-time work, making it also difficult to execute part-time work as part of a Human Resource tool. In this respect, the Island Government of Curaao is a trendsetter. In 2004, the Island Government introduced a policy on part time work enabling public servants to shorten their working hours by 20 percent. Until now, less than one percent of public servants make use of this possibility. This may be due to unfamiliarity with this policy and/or due to the corresponding loss of income. During the last weeks of 2009, the central government of the Netherlands Antilles, in close cooperation with the island governments, executed the Brooks Tower project, which was aimed at unregistered and illegal aliens. The objective of the socalled Brooks Tower project was for the government to gain insight into the number of undocumented persons working on the islands of the Netherlands Antilles (St.Maarten & Curaao) and to reduce the number of non-registered persons. These persons were offered the chance to register for a one-year temporary residence permit if they met certain conditions. Approximately 3,400 people registered under the Brooks Tower project. Exact data on how many requests were approved are not yet available. The implementation of the Labor Force Development Policy and Structural Proposal that was drafted and approved by the social partners in 2008 has encountered some difficulties. However, there has been some progress in the implementation of the projects, especially those that are part of the SEI program. In order to implement the proposal in a more coherent way, the dialogue between social (tripartite) partners was resumed early in 2010.

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1.4 Fiscal & Monetary developments in Curaao Introduction The public finances of the island government of Curaao reflect a budget surplus of NAf. 90 million. Table 1.6 provides an overview18 of government revenues and expenditures for the year 2009. Significantly, all the actual figures included in the Island Government of Curaao financial report are on a cash basis and all the projected figures are on a transaction basis.
Table 1.6. Financial report of the Island Government of Curaao for 2009 (x NAf. mln)
2009 (projection) 1202.1 2009 (actual) 1186.1

Total revenues Current revenues -Tax revenues *Taxes on income and profits Profit tax Wage tax Income tax *Tax on property *Taxes on goods and services, including motor vehicle taxes *Other taxes -Non-tax revenues Capital revenues Grants Total expenditures Current expenditures Wages and salaries Pension premiums Goods and services Subsidies, including to public companies Transfers Interest payments Capital expenditures Operational balance Source: Department of Finance, Island Territory of Curaao.

198.0 486.0 3.0 30.0 36.5 16.0 234.4 3.0 185.2 1195.1 294.4 89.9 370.4 50.7 189.6 158.6 41.5 7.0

222.6 487.6 2.7 30.9 43.7 11.2 192.9 2.5 192.0 1096.1 282.5 84.7 341.9 50.0 184.1 136.3 16.6 90.0

18

Due to rounding, totals may not add up

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The differences between the budgeted amounts and the actual amounts for the year 2009 will be analyzed below. In addition, the debt position at the end of 2009 will be discussed. Revenues Total actual government revenues in 2009 were NAf. 16 million lower than initially estimated. The profit tax contributed favorably to revenues. In 2009, the government collected NAf. 222.6 million in profit tax, totaling NAf. 24.6 million above anticipated revenues. The higher profit tax revenues were due to the fact that most companies submitted their profit tax form on time, and that various companies maintain a financial year that does not coincide with the calendar year. Wage-tax revenues also contributed favorably to the budget surplus. Despite the slight contraction of the economy in 2009, there was an increase in the amount of workers. The government collected NAf. 1.6 million more in wage tax than estimated. Despite higher than expected revenues from profit and wage taxes, total tax revenues fell short of estimates. This was mainly caused by lower revenues on the wasteproduct tax (Afvalstoffenbelasting) and non-tax revenues. Lower revenues from fees, charges and sales, as part of the non-taxes category, were due primarily to lower amounts collected on ground lease in the amount of NAf. 3.4 million. The receivable-accounts records for ground lease have been streamlined in order to guarantee a timely collection of these revenues. Expenditures Year 2009 saw a positive development in overall government spending. As shown in table 1.6, total government expenditures were NAf. 99 million lower than estimated. This under spending of the budget was mainly caused by lower expenses on the budget items interest payments and goods and services. Expenditures for interest payments were NAf. 23 million lower, made possible by advance payments received from The Netherlands in connection with the debt-relief program. In 2009 the Island Territory of Curaao received a total of NAf. 307.3 million in debt-relief funds from the Dutch government. In addition, the budget item wages and salaries recorded an underspending of NAf. 11.9 million. The underspending on wages and salaries came as a result of unfilled vacancies in civil-service positions and the fact that not all civil servants received their wage supplement in 2009. Another factor was lower spending on pension premiums, amounting to NAf. 5.2 million.

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Debt Position 2009 The financial position of the Island Territory of Curaao improved in 2009. The total debt at the end of 2009 recorded a decrease of NAf. 261.9 million compared to the end of 2008, reaching a level of NAf. 2,647.8 million. Monetary Developments The Central Bank of the Netherlands Antilles (BNA) is responsible for the monetary policy. The main goal of the policy conducted, is to safeguard the stability of the external value of the Netherlands Antilles guilder at a fixed exchange rate of NAf 1.79 for 1 USD. In order to preserve confidence in the exchange rate the BNA aims at maintaining a level of official reserve (excluding gold) worth three months of merchandise imports. The developments in the aggregate money supply, the private credit extension and the official foreign reserves position of all commercial banks are the most important indicators used by the BNA as a basis for policy adjustments. Monetary Policy in 200919 The most important instruments used by the BNA in conducting its monetary policy are the requirement for commercial banks to maintain a positive total Net Foreign Asset position , the bi-weekly auctions of certificates of deposit (CDs) and the reserve requirement. During the first nine months of 2009 , the BNA conducted a laid back monetary policy. The BNAs main monetary-policy instrument, the reserve requirement, was reduced monthly until reaching a level of 11 percent. The reserve requirement implies that all domestic banks make a non-interest-bearing deposit to a blocked account with the BNA. In addition, the BNA offered bi-weekly tenders of CDs at a competitive interest rate. This laid back monetary policy was induced by, at one hand, the fulfillment of the official reserves target and on the other hand the fact that the excess liquidity in the banking system did not conduce to excessive credit extension by the domestic banks. Therefore, the pledging rate, the official interest rate of the BNA, remained unchanged at 1.0 percent during the first nine months.
20

Monetary Indicators At the end of 2009, net foreign assets recorded an increase of 24.3 percent compared to December of 2008. This increase was attributable to increases in both the commercial banks and the Central Banks net foreign assets positions. The net foreign assets held by the commercials banks and the Central Bank increased by 76.9 percent and 8.9 percent, respectively.
19 20

Source: Quarterly bulletin, Bank of the Netherlands Antilles, 2009 The available monetary figures regard the first nine months of 2009

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In 2009, the net domestic assets registered a decrease of 0.7 percent compared to 2008. This decrease was a result of the declined demand for liquid assets by the governments due to the implementation of the debt-relief program. The debt-relief program contributed to a decrease in the government securities held by the commercials banks and an increase in the banking system. Interest Rate Developments In 2009, the domestic interest rates (i.a.. passbook savings and mortgages) experienced some adjustments in line with the international interest- rate developments, as shown in figure 1.2. Figure 1.2. Domestic Interest rates commercial banks
9% 8% 7% 6% 5% 4% 3% 2% 1% 0% jan feb mrt apr mei jun jul aug sep oct nov dec

Passbook savings Time deposit 12 months Mortgages Current account overdrafts

Source: Data derived from the statistical tables of the Quarterly Bulletin of the Bank of the Netherlands Antilles

Outlook for 2010 Monetary policy will remain focused mainly on maintaining the external stability of the Netherlands Antilles guilder. Therefore, policy adjustments will depend on the expected monetary union formed between St. Maarten and Curaao. As of October 10 St. Maarten and Curaao will share a common currency and Central Bank as autonomous countries within the Dutch Kingdom. In such a monetary union a high degree of policy coordination between the two countries is a precondition to an effective monetary policy. 1.5 Balance of Payments in 2009 Preliminary data released by the Central Bank of the Netherlands Antilles show that in 2009 the current account deficit totaled NAf 699.3 million. This is an improvement in the current account of approximately NAf 891 million compared to 2008. The improvement in the current account can be ascribed mainly to the increase in current transfers from the Dutch government in accordance with the

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debt-relief program for the Netherlands Antilles and the smaller deficit on the trade balance. The combined capital and financial account deteriorated in 2009, but at a slower pace compared to 2008. In 2009, the net foreign reserve increased by 535.3 million compared to 2008.
Table 1.7 Balance of Payments of the Netherlands Antilles
21

2007 2008 NAf mln. -1,062.9 -1,561.0 Current Account -3,351.6 -3,563.2 Trade balance 2,329.0 2,118.2 Service balance 5.2 -74.1 Income balance -45.6 -42.0 Current transfers 218.7 244.9 Capital Account 976.5 1,579.9 External financing of the private sector 425.3 449.1 Direct investment* 700.5 1,257.4 Loans and credits* -149.3 -126.6 Portfolio investments* -277.3 -371.6 Change in reserves* Source: Data are derived from the statistics of the Central Bank of the Netherlands Antilles *Negative numbers indicate an increase

2009 -669.3 -3,216.4 1,979.1 -172.7 740.8 200.7 873.7 196.3 866.1 -188.7 -535.3

Current Account In 2009, the trade balance deficit narrowed down as compared to 2008, as imports dropped by 15.3 percent, reflecting the lower import bill. The lower imports in 2009 were mainly due to the lower international average oil and food prices and lower merchandise imports, as the overall demand shrunk. Merchandise imports on Curaao dropped by over 19 percent, reflecting lower demand from the e-zone (former Free Zone) and tourism sector. Receipts from merchandise and service exports dropped by 9 percent in 2009, from NAf 5,626.4 million in 2008 to NAf 5,093.4 million in 2009. The decrease is a result of, i.a. lower revenues from bunkering activities, lower foreign exchange receipts from the tourism sector and a downfall in the construction sector, reflecting a decline in average international oil prices, bunker volume sold, stay-over tourism and construction activities. In 2009, foreign-exchange receipts from the tourism sector on Curaao declined by 4.4 percent. In contrast, receipts of the international financial & business sector, the refining fee paid by PDVSA, and for government services and other services grew by 3.3

21

Data for the BOP are compiled for the Netherlands Antilles. No separate BOP data are compiled and published for Curaao. The figures presented in the table are therefore for the Netherlands Antilles. Nevertheless, if necessary, developments particular to Curaao will be mentioned.

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percent, 7.2 percent, 16.2 percent and 5 percent respectively in 2009, compared to 2008. In 2009, the income balance deteriorated by NAf 98.6 million compared to 2008. The income balance worsened as interest income on portfolio and other investments dropped substantially while payments increased. Compared to the deficit in the income balance, the current transfer balance improved by almost NAf 700 million due to the transfer of funds by the Dutch government in implementation of the debt-relief program for the Netherlands Antilles. Capital and Financial Account In line with the worsening current account, the net foreign debt of the private sector increased by NAf 873.7 million in 2009, albeit at a slower pace compared to 2008. The increased debt is mainly due to a worsening of the loans and credits balance, and partially the direct investment balance, by NAf 866.1 million and NAf 196.3 million respectively. In contrast, the portfolio investment balance improved by NAf 188.7 million. The deterioration of the loans and credit balance is a consequence of the fact that mainly domestic companies withdrew funds from their foreign accounts and foreign assets were repatriated by financial corporations. Additionally, net trade credits extended dropped by almost NAf 109 million. The worsening of the loans and credits balance was mitigated by the net repayment of loans abroad. The worsening of the direct investment balance is due to increased foreign direct investment in the Netherlands Antilles. In 2009, capital transfers dropped by NAf 44.2 million compared to 2008 as a consequence of a drop in development-aid funds received from the Netherlands. Foreign-Currency Reserves in 2008 As a result of developments in the current, capital and financial accounts in 2009, net foreign reserves expanded by NAf 535.3 million compared to 2008. This increase consisted of a NAf 85.5 million rise in net foreign assets held by the Central Bank and a NAf 449.8 million expansion of net foreign assets held by commercial banks.

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Balance of Payments in 201022 For 2010, we expect the current account deficit to stay at about the same level as during 2009, as a result of, i.a. a substantial capital inflow resulting from the Dutch debt-relief program for the Netherlands Antilles. Additionally, we expect a smaller deficit on the trade balance in view of the fluctuating prices of oil and food on the international market, the drop in the volume of imported goods due to expected economic developments and the decline in investment activities, mainly in the tourism sector, due to expectations regarding developments in the tourism industry. Furthermore, we expect the service-balance surplus to contract as a result of the expected decline in service exports. In terms of exports, we expected a small decrease in volume, driven by lower demand due to the expectations regarding the economic performance of the main trading partners and expected higher competition in the region. Furthermore, we expected both the direct investment balance and the loans and credits balance to worsen in 2010the latter due to, among other things, a decline in net trade credits. 1.6 Social Economic Initiative Program Introduction The Social Economic Initiative (SEI) was founded with the goal to introduce a number of projects, reforms and measures to be implemented in the period of 2008 through 2010, with a possible extension into 2011, to ensure sustainable improvements in the economic structure and social backlogs on Curaao. Moreover, the SEI pays special attention to managerial reforms, considering the new constitutional status of the island as Pais Krsou. Furthermore, there are a few initiatives aimed at improving the functioning of the labor market to meet economic as well as social objectives. The SEI is funded by the Dutch government and managed by USONA. Originally, the Dutch government earmarked an amount of NAf 60.5 million as funding. However, it was agreed with the Dutch government that an additional 30 percent of the development fund for 2008, 2009 and 2010 could be used for the SEI. Twothirds of this amount consist of funds allocated under Other on the yearly budget, with the remaining one third being half of the budget set for Institutional Reinforcement and Governmental Force23. As a result, the total budget for the SEI

22

Quarterly Bulletin, Bank of the Netherlands Antilles, 2009 Statistical tables of the Quarterly Bulletin, Bank of the Netherlands Antilles, 2009 23 Institutionele Versterking en Bestuurskracht

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projects amounts to approximately NAf 123.6 million 24, including the additional 30 percent of the yearly development fund, for a total of 127 projects. A considerable number of the projects financed by the SEI fund is co-financed with funds from the Island Government, the private sector and other donors. In brief, the main purpose of the SEI projects is to provide the island of Curaao with a healthy starting position as of October 10, 2010, by stimulating economic, social and managerial progress. Economic progress is measured in terms of annual increases in the GDP and decreases in the unemployment rate. The aim is to have an annual growth of at least 4 percent and unemployment-rate decreases of at least 2 percentage points per year. Social progress is defined as achieving structural improvements in the quality of life of citizens with critical social needs (measured by the UNDP Human Development Index) and solving critical bottlenecks in the educational system, especially for vulnerable groups (measured by their participation rate in education and the labor force). Managerial progress is defined as supporting the new government in order to realize the goals set for Pais Korsou, reducing government debt to an acceptable level and gaining control over the governments funds. Although an extensive number of projects and initiatives qualify as SEI projects/initiatives, this paragraph presents merely seven. These are economic projects and were chosen for this article because of their clear, direct and significant contribution to the above-mentioned economic development indicators. In the framework of stimulating economic progress, a set of policy fields have been defined. Each potential project/initiative must contribute to restructuring the economy and fit into at least one of these policy fields in order to qualify for the SEI fund: Research on long-term economic development, setting a long-term vision for the island Improvement of the investment climate by restructuring regulations and procedures Promotion of entrepreneurship, especially small businesses

Investments in the infrastructure on behalf of strong economic development

24

Depending on exchange-rate fluctuations

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Projects/Initiatives Long-Term Economic Strategy The objective of the long-term Economic strategy is to plan, implement and monitor a strategy to turn Curaao into an island that distinguishes itself from others in the region and worldwide in order to achieve a competitive position. Currently, the sector generating the most domestic income is tourism. This sector is, however, subject to many exogenous influences. Hence, a plan is needed to further develop other sectors, both existing and new ones, creating more sources of income and thus sustaining economic progress and becoming more self-sufficient. The research on long-term economic development will result in specific plans and measures to maintain a diversified economy, which on the long run will result in more economic activities, an increased GDP, less unemployment and a better quality of life for the citizens. Such a plan is being formulated. The strengths, weaknesses, opportunities and threats of (existing and potential) economic sectors are being analyzed in order to brainstorm on new ideas to further develop the different sectors. The total costs budgeted for this project equal NAf 1 million and are financed 100 percent by the SEI-fund. The project caters to setting a long-term vision and fits into the first policy field, that of research on long-term economic strategy. Curalyse Upgrade Curalyse is a macro-economic model used for research on the effect of different influences and measures on key economic variables (GDP, unemployment, poverty) in the past, present and future. This model is used to quantify short and long-term economic development. The model was developed in 1996 and has been updated regularly. Nevertheless, considering the new constitutional structure as of October 2010 and the new challenges it presents, the model has become outdated and needs to be modified and upgraded in order to be representative of the economy. The importance of this project lies in the fact that an appropriate model is needed to facilitate reputable research. At the present time, this project is in the execution phase. An amount of NAf 320,000 has been budgeted for the project, which is also being financed 100 percent by the SEI-fund. As the model is used for research, this project too fits in the first policy field. Tourism Marketing The tourism sector, measured by the number of arrivals (stay-over and cruise) and hotel occupancy has been expanding over the last years, but experienced a downturn at the end of 2009 as a consequence of external factors such as the worldwide

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economic depression and regulatory developments in Venezuela (one of our main markets). The objective was, initially, to increase visitor arrivals, length of stay and tourist expenditure. However, due to decreasing travel spending as a consequence of the weakened world economy, the Tourism Marketing project is now an effort to minimize their negative effects by promoting Curaao as a competitive destination in North America (the North-East coast), Venezuela, Colombia, Brazil, the Caribbean (Trinidad & Tobago, Jamaica and Barbados) and Europe (the Netherlands, Germany, Belgium, Sweden and Finland). Significant efforts have already been made to achieve an increase in the amount of annual visitors, which resulted in the above-mentioned increase in arrival numbers prior to the downturn at the end of 2009. Increases in the number of arrivals have positive effects on GDP and employment in the tourism sector as well as in spin-off sectors. An amount of NAf 24.3 million is budgeted for the Tourism Marketing Plan over the period of 2009-2011, of which NAf 9 million is financed by the SEI fund. The remaining NAf 15.3 million is financed by the Island Government with funds obtained from the collection of hotel room tax. With tourism being one of the pillars of the economy, the project is conditional for the investment in infrastructure as many other investments in infrastructure are on behalf of the tourism sector. Competition Policy

The first phase of this project consists of research and analysis of possible
bottlenecks to the competition policy and presenting suggestions to solve these in order to achieve the desired policy. The second phase consists of actually formulating the competition policy through legislation and proposing a Competition Authority. The establishment of a Competition Authority is the ultimate goal, in order to keep good track of the market system and supervise compliance with the competition law. The competition law is meant to combat price agreements, abuse of power and unfair competition that result in welfare losses. Moreover, clear-cut rules are essential to attract new business (investments). Therefore, the establishment of a Competition Authority and the adoption of competition legislation will improve the investment climate. The project is currently at the research and analysis phase. It is predicted that by the end of 2010, the Competition Authority will be a fact. An amount of NAf 390,000 is financed through the SEI. Co-financing is for an amount of NAf 360,000 by the Island Government, thus covering the total costs of NAf 750,000.

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Red Tape Project Currently, the process of obtaining a (business) license is time-consuming due to the complicated procedures and organizational structure. Red tape hampers economic activity and might even discourage the establishment of new businesses (investments). The red tape project is intended to reduce the inefficiencies in the governmental sector regarding admission procedures by 25 percent, by automating and streamlining these. The reduction in red tape will contribute to an improvement in the investment climate, which in turn will lead to an increase in investments and thus more economic activities. This is translated into real GDP growth. Research and analysis on how to reduce red tape are currently being carried out. These are budgeted at NAf 90.000, with 100 percent financing by the SEI. Curaao Economic Development Board (CEDB) The CEDB is charged with promoting Curaao as an attractive investment destination for potential local and foreign investors. The board is responsible for the development of investment programs to promote investment in target sectors and facilitate the establishment and expansion of businesses looking to invest on the island. The activities of the board contribute to the promotion of entrepreneurship, with more economic activities and real GDP growth as a result. The total amount budgeted for the establishment and activities of the CEDB is NAf 2.2 million, of which 50 percent is financed from the SEI-fund and the other NAF 1.1 million by the Island Government. Rumbo pa Trabou The Rumbo pa Trabou project (literally translated: heading towards employment) has the objective of reducing unemployment and supporting upward mobility on the labor market for the low-skilled. This kind of dynamism on the labor market provides for new entries at the lower level of the labor market. The project consists of three subprojects i.e.: improving the employability of the unemployed by working on their work motivation and communication skills; matching the qualifications and skills of potential employees to the demand on the labor market through on-the-job training; and monitoring and coaching the newly employed during a period of 3 months by catering to their specific needs, e.g. job coaching, budgeting courses and family coaching (daycare for children). The project prepares the unemployed and low-skilled only for jobs with a supply surplus on the labor market, using a semi-custom made program starting at the initial skills of the potential employee and working up towards the specific demands of the potential employer.

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Currently, a pilot is being run: ten to twenty people are being prepared for jobs in housekeeping and about ten as security officers. Ultimately, a total of 450 unemployed and low-skilled citizens will be trained and schooled within a period of three years. The importance of this project lies in the fact that it contributes to the increase in participation of the population and, as a result, improves their quality of life. In addition, unemployment and consequently government expenditure on social provision will decrease. The total budget for this project is NAf 5,236,000, financed by the SEI-fund.

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CHAPTER 2 SECTORAL DEVELOPMENTS IN ACCORDANCE WITH DEFINED FUTURE ECONOMIC COURSE

2.1 PRODUCTION SECTORS 2.1.1 AGRICULTURE, LIVESTOCK, AND FISHERIES25 Introduction The Agriculture, Livestock and Fisheries sector makes a modest contribution (less than 1 percent) to the annual GDP. The sector is characterized by its labor intensiveness, extensive means of production, small domestic market and the cheap supply of products from abroad. Interest in working in the sector is weak because of factors such as low earnings as compared to the hard working conditions and the misconception that working in this sector is mainly for the low-skilled. Furthermore, production in the sector is subject to many external factors such as weather, seasonality and oil prices. According to the Department of Agriculture, Livestock and Fisheries, 92 to 93 percent of locally consumed food is imported; only 7 to 8 percent is locally produced. One of the main reasons for this, in case of agricultural products, is the fact that the climate is not suitable to produce all crops demanded. Another is the limited supply of labor in the sector as a whole. However, by encouraging more suppliers in the sector it may be possible to increase production and therefore save foreign exchange. Furthermore, diversification through the production of more highvalue products and niche products, processing of agricultural commodities and export is needed. The Department of Agriculture, Livestock and Fisheries is responsible for the development and implementation of agricultural policies. It is the objective of the department to increase the contribution of the sector to the food supply in Curaao in the short run, create and retain employment in the sector by encouraging small and medium businesses on medium term and stimulate the production of high-value products on the long run with the goal of generating exports. Currently, actors in the Agriculture, Livestock and Fisheries sector can import needed equipment free of import taxes. Moreover, technical and labor assistance are being provided below cost to actors in the sector.
25

The information in this chapter is mainly based on data provided by the Department of Agriculture, Livestock & Fisheries unless otherwise stated.

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International Developments and Trends Agriculture According to information provided by the World Bank 26, agricultural prices have declined in 2009 compared to their peak in June of 2008, but remain high when compared to the lows reached in the early 2000s. The recent fall in prices relative to previous peaks reflects not only the lower oil prices, which is a key cost component in the sector, but also the larger stockpiles of key agricultural commodities (rice, maize and wheat) resulting from favorable harvests and area expansion of these commodities. These price fluctuations have moderate effects on the demand for agricultural products though, since the price elasticity is very low. Price fluctuations have more impact on demand in developing countries as compared to developed countries, as household expenditures on agricultural products take up a larger share of household income in developing countries. Livestock After the price escalation in the first half of 2008 and the subsequent sharp drop, meat prices remained stable in 2009. The negative impact of the economic crisis on consumers purchasing power lead to a weakened demand for meat, but global meat production also slowed down in 200927. In the period of November-December 2009, the global price of dairy products continued a strong recovery from their bottom levels in the first part of 2009. From the summer onward, the pace of the increase was as swift as the preceding drop from their peak levels in 2008. From August to December 2009, the Oceania export prices, indicative of the world market situation, increased by two thirds (butter prices doubled!). This climb in prices resulted from the continued improvement in global demand, especially in South-East Asia, as economic activity moderately picked up, and from the tightening milk-supply situation in all the main production areas. Milk output in 2009 remained below 2008 levels in the US and Australia, and was lower than expected in New Zealand due to adverse weather patterns. Fisheries Fish stocks are scarce. This is a global phenomenon caused by excess fishing and decade-long use of wrong techniques. As a result, aquaculture is becoming an international trend. China, for instance, rears more fish in basins than are caught

26 27

Source: The World Bank (2010). Global Economic Prospects 2010 Source: European Commissions January (2010) Update on Price Developments in International Agricultural Commodities Markets

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there in nature. The scarcity of fish stocks and the use of aquaculture have led to substantial increases in fish prices28. An important development for the food sector as a whole is that short-term food security concerns have subsided and, as a result, most countries have reduced or eliminated export bans and other export restrictions that were put in place during the commodity price spike of 200829. The reduction in export restrictions is an important development in this regard, considering the islands dependence on food imports for reasons mentioned previously. This development increased the competition between locally-produced and imported commodities. As mentioned above, the Agriculture, Livestock and Fisheries sector is traditionally characterized as an extremely labor-intensive sector. However, modern technologies make it possible to decrease the demand for labor in the sector. The freed manpower is then used in the agricultural industries and other sectors. Unfortunately, the agricultural industry has not yet been developed as a (sub-)sector in Curaao. The possibilities to develop this sector are being explored. Another world trend is that men of labor-force age are migrating to urban areas and, as a result, the number of women and older employers (over 60 years of age) is increasing in the sector. This trend is not seen in Curaao though, since the islands small size makes job migration to urban areas irrelevant. According to information at the disposal of the governments Agriculture, Livestock and Fisheries Service, the average age of workers employed in the sector is relatively high (> 45 years) though, compared to other sectors. This is because interest in working in the sector is particularly weak among youngsters. Concerning the weather, 2009 had a rather wet start of the year for the region, but rainfall had diminished considerably by May. Since early May, rain abandoned the region and a period of severe drought followed, lasting to the end of June. The months of June to November were drier than usual. November 2009 was one of the driest November months in the last fifty years. The reason why the island got less rain than usual is the presence of a moderate El Nio 30 . Macroeconomic and Sectoral Developments in Curaao during 2009 Based on information received, as well as on its own observations, the Department of Agriculture, Livestock and Fisheries states that the amount of actors in the sector remained approximately the same as compared to 2008. Some enterprises discontinued their business but there were others entering the sector. Data collected
28 29 30

Source: G. van Buurt, Dienst LVV (2001). Visserijbeleidsplan Eilandgebied Curaao Source:The World Bank (2010). Global Economic Prospects 2010 Source: Press release Meteorological Service of the Netherlands Antilles and Aruba (www.weather.an)

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by the Central Bureau of Statistics (CBS) indicate that in 2008 there were 727 people employed in agriculture, fishing and mining. No data for 2009 was available up to the time of this publication. Considering the above-mentioned statement by the Department of Agriculture, Livestock and Fisheries, the number of people employed remained approximately the same in 2009. Trade in local agriculture products diminished in 2009 as compared to 2008, according to the Department of Agriculture, Livestock and Fisheries. Their conclusion is based on the observed need to import products in 2009 that are normally not imported, especially fruits and vegetables. The decrease in trade is a result of the decrease in production in this sector. The relapse in production is, in the case of agriculture, caused by weather influences and pests. In the case of livestock, it is caused by theft of goats and sheep and STIVECUs delay31 in setting up the intended pig farm. In the case of fisheries, it is caused by the increase in fuel prices. As a consequence of the decrease in production, competition in the sector was brought to a minimum in 2009, whereas normally competition is fierce since the products in this sector are homogeneous and the market comprises mainly small consumers. Moreover, there are not any forms of cooperation in the sector; each actor brings his products to the market individually. Agriculture Agriculture in Curaao consists of relatively small farms growing fruits and vegetables, a practice better described as horticulture. These farms concentrate mainly on the islands east and west sides and grow about 26 varieties of fruits and vegetables, such as eggplant, leaf lettuce, cassava, coriander, hot and bell peppers, cucumbers, melons, okra, papaya, parsley, radish, beet root, spinach, onions, sweet potatoes and watermelons. Farms on the east side produce mainly fruits and vegetables that can grow on soil water. Farms on the west side grow fruits and vegetables that are dependent on rainfall, like corn, peanuts, squash and the WestIndian cucumber. The Department of Agriculture, Livestock and Fisheries has approximately 350-400 clients on the east-side and 250-300 on the west-side that make use of their services. The year 2009 was characterized as a relatively dry year, resulting in a yield decrease for certain fruits and vegetables (based on observed import of products that are usually not imported). The presence of diseases also contributed to the yield decrease in the sector. However, an increasing demand for fruits and

vegetables is being observed, caused by the new healthy-living culture adopted from other parts of the world. This translates into an expansion of the agricultural area and a variety of vegetables being grown32. In 2009, the
31 32

Association of Livestock of Curaao Source: Interview (June, 2010) with the Head of the Agriculture Department at the OBNA

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Department of Agriculture, Livestock and Fisheries invested NAf 175,000 in a new tractor. The delivery, however, took place in 2010. In addition, there were NAf 20,000 in private investments financed by OBNA33 (table 2.1). Livestock The livestock sector on Curaao consists mainly of goat and sheep farming. The animals are bred and farmed for meat, which is one of the activities of the Department of Agriculture, Livestock and Fisheries. The Department of Agriculture, Livestock and Fisheries farms pure-breed animals and rents them out to private farmers for breeding purposes, to increase the stock. Compared to 2008, there are little or no developments observed in this sub-sector. According to observations by the OBNA, this is because sales are stable. Compared to 20 years ago, however, a trend can be observed. The Department of Agriculture, Livestock and Fisheries has seen a decline in the number of slaughters over the years, to about 1,700 animals per year at present, while the weight of the cattle has increased to an average of 9 to 14 kilos per animal. Nevertheless, these developments have not resulted in either an increase or a decrease in the production of meat. The decrease in slaughters is caused by the decrease in the amount of animals as a result of theft and the fact that some former actors in the sector have discontinued operations because of that. Moreover, the price of feed has increased dramatically to roughly NAf 1.50 per kilo. Feed is imported from Jamaica, Trinidad, Venezuela, Colombia, USA, Canada and even Europe (grass) 34. Since the closing down of the local Continental Milling company, which used to produce feed from its own waste products, feed needs to be imported. It is clear that the price of feed fluctuates with fuel prices. It is furthermore estimated that the slaughter of animals at Parera and Barber, which are the legal slaughterhouses, only accounts for approximately 50 percent of the animals slaughtered for meat. The other 50 percent is done illegally 35. OBNA estimates that approximately 800 people are employed in the livestock industry and that this amount has also remained relatively stable over the years. In 2009, the Department of Agriculture, Livestock and Fisheries invested an amount of NAf. 200,000 in this (sub-)sector for the import of purebred animals. The delivery however, was done in 2010. Besides the investments by the Department of Agriculture, Livestock and Fisheries, there were private investments financed by OBNA for an amount of NAf 10,237 (table 2.1).

33 34

Development Bank Netherlands Antilles Source: Interview (June, 2010) with Experts from the Department of Agriculture, Livestock and Fisheries (Dienst-LVV) 35 Source: Interview (June, 2010) with Experts from the Department of Agriculture, Livestock and Fisheries

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Fisheries The fisheries industry in Curaao consists of the so-called traditional fishing. Fish are caught along the shore or in the open sea up to 12 miles from the shore. Department of Agriculture, Livestock and Fisheries estimates the yearly catch at approximately 200 metric tons36 This is a fierce decrease as compared to two decades ago. However, the catch has been stable for some years now. There is a seasonal pattern in the variety of catch: from March to July, it consists mainly of dolphin-fish (dradu); from August to September, of demersals, mainly red snapper; and from October to December mainly wahoo (mula) is caught. The Department of Agriculture, Livestock and Fisheries estimates the number of fishermen at 100 people working full time in fisheries and another 150 fishing on part-time base. The average price of fish has increased by approximately NAf 3,- per kilo in 2009 compared to 2008. This is a result of the increase in fuel prices. Moreover, vessels with European engines suffered from the strong increase in the euro-dollar exchange rate, seeing the price of engine parts increase significantly. Investments in this (sub-)sector by the Department of Agriculture, Livestock and Fisheries consisted of building and improving slipways at fishing ports. Unfortunately, the numbers for 2009 could not be given. Private investments financed by the OBNA in 2009 were for an amount of NAf 173,000 (table 2.1). Table 2.1 shows the amount of investments financed by the OBNA in 2008 and 2009. The total amount of investments increased slightly in 2009 as compared to 2008. The investments in agriculture/horticulture were intended to buy equipment to increase production rather than to expand, since expansion is practically impossible due to the scarcity of land. Investments in livestock were made to buy animals. Private investments in livestock are rather scarce because of the frequency of animal theft. Investments in fisheries were mainly to purchase vessels.
Table 2.1.
Sub-sector Horticulture Livestock Fisheries Total Source: OBNA

Investments in agriculture, livestock and fisheries

Investments in NAf 2008 2009 69,000 20,000 45,000 10,237 44,640 173,000 158,640 203,237 # projects 2009 1 1 8 10 # jobs created 2009 3 3 16 22

36 Source: Logistics Support Group commisioned by Directorate of Economic Affairs(2008). Contourplan voor Maritiem Beheer en Duurzaam Gebruik van de Kustzone in de Dutch Caribbean

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Expectations for 2010 and Beyond On the international level, it is expected that the increase in demand for food products will resume in the context of an improved economic outlook for this year, especially demand from forceful countries like China and India which are going through periods of high economic growth. As income rises, the consumption of staple foods, which is relatively income-inelastic, will fall further whereas consumption of meat, which is relatively income-elastic, will rise37. Moreover, there is an increasing demand for prime agricultural products for the production of biofuel. It is expected, though, that future generations of biofuel technologies will rather rely on organic waste instead of prime agricultural products. According to the World Bank38, food prices are expected to remain broadly stable in real terms over the medium to longer terms. On the one hand, the strong link between energy and food pricesthe positive correlation between food and oil prices, plus the demand for agricultural products for biofuelwill exert upward pressure on prices. On the other hand, the continued gains in total factor productivity, which tend to be strong in agriculture, should constrain production costs and thus put downward pressure on food prices. It is therefore expected that world prices will remain high, posing opportunities for the local market in Curaao. Combined with the political decisions in Venezuela to diminish/restrict export, the higher prices of foreign products create possibilities to increase the sale of local produce. On the other hand, high fuel prices will also cause the price of local products to increase, and as a result cut the margin between the prices of local and imported products. One of the strengths of local products is their freshness, flavor and the fact that local products has a longer shelf life than imported products. Marketing policies to increase the demand for local products should focus on these facts. Moreover, provided that demand will increase, possibilities to increase production need to be explored. The Department of Agriculture, Livestock and Fisheries will continue with its policy to raise and diversify the local food supply to anticipate the unstable demand and supply in the world which result in fluctuating prices. Specifically, the policy is geared towards stimulating the sector by improving services rendered to the sector. Financing will come from the regular budget and from USONA funding. On the short run, the prospects for the sector in Curaao are that production of local food (fruits, vegetables, meat and fish) will rise slightly, since the market is saturated: most products that can be produced locally are already being produced to satisfy local needs, and the demand for other products that are not being produced on
37

Source: FAO (2006). Food Security and Agricultural Development in Times of High Commodity Prices 38 Source: The World Bank (2010). Global Economic Prospects 2010

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Curaao but which can be produced, is limited. Innovative production techniques for crops for which the climate is not suitable should be explored. However, the opening of new hotels, like the Hyatt in 2010, and restaurants pose possibilities of increased demand for this sector. Agriculture The Department of Agriculture, Livestock and Fisheries makes regular investments to improve the infrastructure, sale facilities and services to the sector. As mentioned previously, the tractor bought in 2009 was delivered in 2010. Moreover, the Department of Agriculture, Livestock and Fisheries has observed some private investments being made in this (sub-)sector. Furthermore, SOLTUNA39 has invested an amount of approximately NAf 350.000 in a greenhouse of approximately 2,000 square meters. This greenhouse is expected to be operational by August of 2010 and produce vegetables for the local market with possibilities to export to countries in the region. Greenhouses have a higher yield per square meter as compared to outdoor growing. It is therefore expected that production, employment and export in agriculture will increase. SOLTUNA is planning the construction of another greenhouse in the near future. Livestock As mentioned previously, the department invested an amount of NAf 200,000 in animals for breeding to be used by private farmers, and these were delivered in 2010. The department plans to invest another NAf 200,000 in the near future. The investments in purebreds increase the quality of the animal stock. These purebreds will also provide descendants. These investments are therefore expected to boost cattle breeding and the production of meat for the local market on the long run. Fisheries The private investments in fisheries are mainly to buy vessels already in use and therefore do not result in fleet expansions. There is furthermore no need to expand the fleet, since the probability of increasing the total catch is close to zero. Investments by the Department of Agriculture, Livestock and Fisheries were spent on improvements in infrastructure and sale facilities for the (sub-)sector. Possibilities to boost the (sub-)sector lie in the development of a (semi-)industrial fishery posing possibilities of export to the region, and maybe even Europe.

39

Stichting Ontwikkeling Land- en Tuinbouw Nederlandse Antillen

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2.1.2 OIL SECTOR International Developments in 2009 The price of oil products on the international market fluctuated strongly during 2009. Figure 2.1 shows a varied trend starting at $35 per barrel in January of 2009, and ending at $74 in December 2009. Since April of 2009, the price has remained stable above $50 per barrel. Further analysis of international prices indicates that during the last quarter of 2009, the price of crude oil on the international market fluctuated within the range of $70-80 per barrel. (See figure 2.1.) Members of the Organization of Petroleum Exporting Countries OPEC are convinced that a $75 price per barrel of crude oil is fair. According to oil experts, investments are profitable whenever the price of crude oil fluctuates above the range of $70 to $75. Therefore, several investment projects in the world have been suspended due to the fact that for some time during 2009, the oil price on the international market actually fluctuated below the range of $70-75 per barrel40. There are many factors that have contributed to the alternating trends of the price of crude oil and derivatives on the international market: In the first place, OPEC 41 cut its daily oil production. According to a Reuters survey, OPEC has made 81 percent of its pledged 4.2 million barrel per day reduction. It is worth mentioning that Russia, a non-OPEC member that can be considered an important energy powerhouse, exceeded Saudi Arabias daily oil production. OPEC has no control over Russia, which is free to set its own production quotas. Besides, there were persistent uncertainties regarding the total recovery of the world economy. The local governments of both the USA and the euro zone invested millions of dollars and euros in their economies in order to stimulate their recovery. Meanwhile, the world economy showed slight signs of improvement. However, the euro zone had to deal with rising debt and credit worries. World demand for crude oil and oil derivatives on the international market showed a sharp fall. In their September 2009 bulletin, OPEC members called 2009 a disastrous year, in terms of world demand for crude oil and oil derivatives. Oil speculators, on the other hand, are convinced that the recession will come to an end in the near future and therefore the prices of crude oil and oil derivatives will increase. Worth mentioning is the fact that credit worries in the euro zone pushed up the value of the US dollar against the euro.

40 41

Source: Wetenschap.infonu.nl Organization of Petroleum Exporting Countries

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Lastly, the EIA42 reported a decline in world oil inventories. There exists suspicion that oil refineries used stored-up crude oil instead of buying new production. According to EIA, de huge fall in oil production is due to the fact that the majority of oil fields and oil-producing countries in the world have reached their peak production. One must take into consideration that the planned investment in the oil sector was suspended due to the world financial crisis. Special attention should be given to the fact that rising oil prices were accompanied by an increase in gold prices, due to speculators seeking refuge in precious metals. The price development of crude oil on the international market is illustrated in Figure 2.1. Figure 2.1. International crude-oil price development43
Oil price development 2009
$ 100.00 $ 80.00 $ 60.00 $ 40.00 $ 20.00 $ 0.00 Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec $ a barrel

Source: WTI (West Texas Intermediate)

Prospects for 2010 According to the EIA, there will be a steady increase in oil prices in 2010. At the time of this publication, the price already hit $84 a barrel. The forecast is that the price of oil will keep on rising during 2010. Some oil experts speculate that in 2010 the price of crude oil on the international market will reach $100 per barrel. NonOPEC members such as Russia, Canada and the United Kingdom are expected to increase their production by 600.000 barrels per day. OPEC, on the other hand, has raised its projection for oil demand growth for 2010 by 100.000 barrels per day. The optimism of both the EIA and OPEC is based on expectations that in 2010 the world economy will fully recover and, as a result, world demand for crude oil and oil derivatives will increase.The International Monetary Fund (IMF) expects the world
economy to grow in 2010. However, the growth of the emerging and developing economies, especially China, India, Brazil and Russia will exceed the growth of the worlds advanced economies such as the USA, Japan and the euro zone.44

42 43 44

Energy Information Administration Source: Energy Information Administration (Spot price FOB by estimated export volume) Source: World Economic Outlook 2010

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The Local Oil Refinery in 2009 The oil sector is an important pillar of the local economy. There are approximately 1,000 people directly employed at the oil refinery. In addition, there are between 300 and 500 jobs created through maintenance work done by private contractors. Furthermore, there is a correlation between the refinery and the harbor: less production at the refinery implies less activities or income for the harbor. The oil refinery, owned by Refineria di Korosu (RdK), has a maximum production capacity of 320.000 barrels daily. The oil refinery is being operated by Petroleos de Venezuela (PdVSA) through a lease contract that will expire in 2019. The refinery processes mainly light crude and heavy crude oil (medium crude oil in moderate amounts). The year 2009 was an interesting year for the local oil refinery due to the many challenges encountered. The economic crisis had a negative impact on the performance of the local refinery; the estimated daily production in 2009 was 200.000 barrels. At the time of this writing, the official figures on actual daily production in 2009 have not yet been audited. Furthermore, it is worth mentioning that environmental activists are putting pressure on the local refinery to meet the established environmental standards. During 2009, the oil refinery exported oil products to several countries. The main export markets are shown in Figure 2.2: Figure 2.2 Export destinations in percentages per country
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

% of the export

Source: Refineria di Korsou

The three main export markets are: The Caribbean

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Central America and Venezuela.

Local Oil Refinerys Prospects for 2010 The year 2010 is expected to be a turbulent year for the local oil refinery. At the time of this writing, the oil refinery is encountering many problems with the CUCs (BOO) energy supply. The main aim of the CUC project was to supply electricity to both the oil refinery and Aqualectra45. Mid 2009, CUC reported that the company was facing technical problems and, more importantly, financial limitations that prevented them from properly dealing with these. Since then, the latter resulted in several utility failures experienced by both the ISLA refinery and Aqualectra. Today, the refinery has been down since March 1, 2010, awaiting utility provision to be resumed. Starting up the CUC installations is crucial to the oil refinerys continuity. Negotiations are taking place for a full restructuring of the CUC project, which may include a takeover of 51 percent of the CUC shares from the current Japanese (Mitsubishi and Marubeni/TAQA) shareholders. Distribution (Curoil NV) Curoil NV is a 100 percent state-owned enterprise. It is the sole distributor of oil products on the island, including the supply of some oil products to Aqualectras production unit. Moreover, for strategic reasons, Curoil operates four gas stations on the island and an additional one on behalf of a third party. Curoil NV depends mainly on the oil refinery, which is its main supplier of oil products. The year 2009 has been an interesting one for Curoil NV. There have been several developments in the (inter)national oil segments such as: Fierce competition in the bunkering and aviation sectors: Curoil NV encountered strong competition from other suppliers in the region, especially Trinidad & Tobago, Panama, Jamaica and Sint Eustatius; Adjustments for the environmentally friendly use of energy, for example the introduction of Low-Sulphur Gasoil Global expansion: Curoil NV has expanded its customer base. Curoil NV now delivers products to several international clients, especially in the Dominican Republic. International adjustments with special attention to the preservation of mankind and the planet: Therefore, efforts are being made to stimulate the use of alternative energy: Curoil NV has started a project in cooperation with Aqualectra, Refineria di Korsou and FAPE to analyze the possibilities to generate fuel from algae.
45

The local supplier and distributor of water and electricity

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According to Curoil NV, the company has the following strengths: Acceptable diversity of products and services High-quality oil products: local oil products meet international standards (ISO 9001 and ISO- 8217) The limited storage capacity can be considered a weakness for Curoil N.V. However, Curoil NV is working towards an expansion of their storage capacity by building more tanks. Curoil NVs local fuel-distribution market consists of four segments: The local transportation market (including Bonaire); The aviation market; Bunkering and International oil sales.

The Local Market Including Bonaire Curoil NV used to offer three main products for the local vehicle market: Mogas 92, Mogas 95 and gas oil. The local government installed a commission to study the possibility of introducing one single type of gasoline and one type of gas oil. Mid 2009, the delivery of Mogas 92 to local vehicle users was stopped. In 2010, the sale of Low-Sulfur Gasoil was launched. Figure 2.3 indicates fuel sales on the local market including Bonaire during 2008 and 2009. Figure 2.3 Fuel-oil sales46
Fuel sales 2008 & 2009 in liters

200,000 150,000 100,000 50,000 0 2008 2009 Gasolin Gas oil

Source: Curoil NV

46

Clarification: The fuel-sales figures for 2009 have not been audited.

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It is essential to mention that it is the local government that stipulates the price of oil products for the local market. In 2009, the local government adjusted fuel prices on a monthly basis until September. As a result, there was no similarity between local and international fuel prices. At the end of 2009, the local government assigned the Bureau Post & Telecommunication (BTP) as the temporary regulator of energy prices. Aviation Market Jet fuel is mainly sold to airplanes that visit our island transporting tourists, but some airlines are making use of technical stops for refueling on the island. As already mentioned, Curoil NV encountered huge competition in the aviation sector. However, the primarily figures indicate a 18.8-percent growth in jet-fuel sales during 2009, in comparison with 2008. (See Figure 2.4.) Figure 2.4 Sales of jet fuel in 2008 and 2009
Sales of jet fuel liters in 2008 and 2009

170 160 150 140 130 120 2008 2009 liters

Source: Curoil NV

Bunkering and International Oil Sales The international business in oil products grew in 2009. The management of Curoil NV is aware of the importance of international sales and globalization and therefore wishes to expand their customer base. Concrete actions are being taken (especially: seminar attendance by professionals, networking, construction of tanks, hiring of floating storage etc.) in order to meet the demands of the customer. Prospects for Curoil N.V. in 2010 Due to several factors, a setback in sales is expected for 2010 in comparison to 2009. As already mentioned, the government did not adjust fuel prices between September 2009 and April 2010. The expectation is that prices will not be adapted on a regular

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basis, as was the case in 2009. This implies that Curoil NV has to pre-finance the community, which puts a very heavy burden on the companys revenues. Additionally, there are also the problems with the BOO power plant that led to a standstill in the production of fuel products at the refinery. This in turn has a negative impact on Curoil NVs local bunkering activities; after all, there were fewer ships mooring at the harbor for the transport of fuel products. In addition, the refinery (PdVSA) had to import products to keep delivering to Curoil NV, but introduced higher prices to compensate for transport costs of the fuel, which affects Curoil NVs competitiveness, especially on the international market. As long as the standstill at the refinery continues, the possibilities for a full recovery of Curoil NV will be hampered. 2.1.3 UTILITIES International Developments Once the world comes out of the current recession and the economic activities pick up again, the supply of fuel will not be able to meet the demand. Thus, it is inevitable that the oil price will go up significantly over the medium to long-term. One of the biggest threats to a sustainable economic recovery according to experts is Peak Oil. Peak Oil does not mean that we are running out of oil reservescrude will be around for decades. However, 'Peak Oil' implies that we are dangerously close to peak global oil production. 'Peak Oil' also means that rather than experiencing a burst in oil supplies as many expect, from here onward we will witness sharp declines in global flow rates. In a nutshell, the era of cheap energy is over and the price of crude oil will rocket higher over the coming decade 47. Add to this the big effort being made and the pressure put, especially on industrialized countries, to lower their CO2 emissions and become more environmentally friendly, and we will find that more and more countries are investing heavily in renewable (green) energy like wind energy (farms), solar energy (panels), hydro energy and biomass. A lot of money is also being invested throughout the world in research and development of renewable energy. According to the UNEP (branch of the UN), in 2009, a total of 140 billion US dollars was invested in renewable energy, in both application and research areas. Based on societal, technical and economic reasons, utility companies around the world are upgrading their electrical grid to be smart. They are moving away from carbonbased power generation and implementing renewable energy, and in doing so contributing to a sound ecological system. Smart grid is a term generally used to describe the integration of all elements connected to the electrical grid with an

47

Source: www.peakoil.com

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information structure offering numerous benefits for both the providers and the consumers of electricity48. Analyzing the Year 2009

For 2009, Aqualectra showed negative financial results. This was influenced by the following factors:
Table 2.2
Water sales Electricity sales Adjustment of the water rate charged Adjustment of the electricity rate charged High fuel prices Unregistered use of water Operational costs Capital investments Source: Aqualectra

Factors that influenced the financial result for 2009

Comment There was an increase of 5.3 percent as compared to 2008 in the sales of water There was an increase of 2.3 percent as compared to 2008 in the sales of electricity There was a reduction of 26 percent in February and then an increase of 5 percent in September 2009 There was a reduction of 10 percent in February and then an increase of 19.5 percent in September 2009 Fuel prices were very volatile in 2009. Aqualectra was not able to fully pass through the fuel costs and this lead to capacity and efficiency deficits The unregistered use of water is estimated at approximately 27 percent A 4-percent rise was reported as a result of imported inflation These equaled NAf. 25.9 million, below the figure for 2008 (NAf. 26.1 million)

Table 2.3.
Electricity sales (kWh) NAf per kWh (Average) Water sales (m3) NAf per m3 (Average) Source: Aqualectra

Utilities in 2008 and 2009

2008 633,700,000 0.5807 9,400,000 13.74 2009 648,400,000 0.62055 9,900,000 10.48

Local Developments In 2009, Aqualectra started the process of refinancing the Company. The refinancing will guarantee a good starting position for the Company as regards financing, allowing it to finance the multi-million investments to be made between 2010 and 2014, thus guaranteeing supply for the coming years. Based on a bond issue carried out under the supervision and guidance of the Central Bank of the Netherlands Antilles, Aqualectra managed on December 23, 2009, to realize a loan of 240 million guilders at 6 percent per annum, with a repayment period of 30 years. With these funds, Aqualectra can: (i) pay back the remainder of the debt to the consortium
48

Source: www.smartgrid.com

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of banks, facilitated by the National Investment Bank [N.A.]; (ii) buy the preferential stocks of Aqualectra from Marubeni/Taqa Corporation, held at present by Aqualectra, and as such Marabeni/ Taqa Corporation is no longer the owner of these stocks; (iii) pay to Curoil and PDVSA a substantial part of the overdue debts for fuel supplies to Aqualectra. Another important development regards community awareness. There is more awareness and involvement of the population and interest groups. People are willing to do more towards energy saving and the use of alternative energy. Theres still a lack of information among the population as to which technology individuals can use to produce energy and under which conditions the energy produced may be sold to Aqualectra. The government is working on an energy policy that should be ready this year. This policy will make it possible for third parties to produce and provide for their own energy, and also make it possible for them to sell energy to Aqualectra. In December of 2009, Aqualectra signed a power-purchase agreement with NU Capital for the delivery of 30 MW. This agreement means an expansion of the two wind parks that currently produce energy. The agreement entails the renewal and expansion of energy production by the wind parks. This project will, besides making the supply of energy more reliable, also contribute to the reduction of yearly of CO2 emissions by 64,000 tons. This is an important step for Aqualectra in the direction of green energy. Aqualectra also signed a contract in 2010 with Wartsila (Finland) for the expansion of the diesel plant at the Dokweg with two units, each with 5.3-MW capacity. This expansion will increase the diesel plants capacity from 37.5 to 48.1 MW. The expansion should be completed in 2010. In 2009, the daily demand for power on Curaao was between 125 and 130 MW. Aqualectra has utility plants at Dokweg and Mundu Nobo, as well as the BOO plant on the Isla Refinerys premises and the windmill parks at Tera Kr and Playa Kanoa. Last November, the Caribbean Electric Utility Service Corporation, (CARILEC) received funding from the International Development Bank (IDB) to the tune of US$ 668,000 or J$59,452,000. The funds will assist CARILEC in achieving the strategic objectives of promoting energy efficiency and the use of renewable energy in the electricity sector in the Caribbean. CARILEC received funding specifically to conduct benchmark studies for a three-year period, which will provide technical data and performance indicators to help utilities improve their energy efficiencies. The funding will also be used to develop a prototype Power Purchase Agreement (PPA) to help encourage the deployment of renewable energy technologies by public and private-sector entities such as hotels and governmental agencies. Another component of the program, which will benefit from the IDB's financing, is capacity building and training programs in energy audits, carbon

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markets (including carbon-credit trading and carbon finance projects), and biofuels development. The Program will be executed by CARILEC in collaboration with the IDB and its Sustainable Energy and Climate Change Initiative Unit. Recently, Aqualectra and Curoil signed an agreement with FAPE to conduct a prestudy on the development of sustainable diesel from algae. This study and its result will be of no benefit to Aqualectra. The diesel in question is for automotive use. Thus, its goal is to replace diesel produced from oil. Aqualectra does not use this type of diesel for its operation and, even if that were the case, the question remains whether enough of it can be produced locally to satisfy Aqualectras needs. The main or only reason why Aqualectra is involved is for the projects funding. Outlook for 2010 The government is working on an energy policy which will make it possible to develop the use of renewable energy in Curaao. This will bring about a new economic sector and new activities, thus creating new jobs. This policy will also enable the government to determine how much of its energy production can come from renewable energy, thus reducing our dependency on foreign fuels, improving energy security and slashing carbon emissions. This last factor can be used by the tourist sector to do more in the area of eco-friendly tourism (ecotourism). The introduction of a regulator is in the making. Several tasks are laid aside in the new energy policy for the regulator. In preparing for the coming of the Regulatory Board, in December of 2009 the Central Government signed an agreement with the government of the Island Territory of Curaao through which the Bureau Telecommunications & Post (BT&P) will have oversight over the production and distribution of water and electricity. Also BT&P will assist Curaao in developing policies and a regulatory framework Smart Grid is a term generally used to describe the integration of all elements connected to the electrical grid with an information structure, offering numerous benefits for both providers and consumers of electricity. Smart grid is intended to reduce electricity consumption, empowering consumers to manage energy and save money without compromising their lifestyle. Deploying a smarter grid can help Curaao realize the great promise of renewable energy sources to help meet our energy appetite. Countries all around the world are deploying their countrys energy policy based on the smart grid philosophy and Aqualectra should also be headed in that direction. The latest developments regarding the fact that BOO cannot deliver electricity to Aqualectra will have its effects on Aqualectra. On the long run, Aqualectra will be operating at maximum capacity and have no reserve capacity left. Should any of its production units fail, this would cause outages and lead to load shedding of the

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available capacity. The BOO (Build Own and Operate) installation is owned and operated by a consortium of companies, among which Aqualectra, owning 49 percent of the shares. The BOO serves as the refinerys utility plant and is also supposed to deliver a certain amount of MW to Aqualectra at a very low rate for resale to its clients. The BOO supplies Aqualectra with more than 10 percent of the MW that Aqualectra sells to its clients. But Aqualectra will be able to balance this loss as soon as its new windmill parks become operational next year. The new project will generate more then what Aqualectra currently receives from BOO, thus making Aqualectra less dependent on BOO and fluctuating oil prices . 2.2. CONSTRUCTION International developments: US and Netherlands Even though the economy in the United States has slowly begun its recovery, the construction sector is still facing difficulties. The residential construction sector was especially hard hit and after years of decline its recovering is slow. The nonresidential part of the sector however, is still performing negatively. According to the American Institute of Architects (AIA) 2010 is projected as another weak year for nonresidential construction. During 2009, construction sector payroll losses accounted for 25 percent of total losses in the US economy. Besides the job losses there were also employees that have been cut back to part time, salary freezes and measures such as involuntary unpaid leave. Not surprisingly constructions share in GDP was cut to half in 2009 and is expected to fall even more in 2010, according to an AIA report. Fortunately, the outlook for 2011 is much better - the US construction sector will then finally reap the benefits of the economic recovery - and is projected to register growth again. The year 2009 has also been tough on the Dutch construction sector and the outlook for 2010 is even worse, according to Bouwend Nederland, a Dutch association of construction companies. Particularly residential and office construction is stagnating. As a result of weakening demand, many workers were laid off and for the next two years employment is projected to decline further by 8.5 percent. The Dutch government introduced special legislation, including a temporary reduction of the value-added tax, to aid the sectors recovery. The forecast is that starting 2012 the Dutch construction sector will begin to recover and employment in this sector will increase again. Local developments 2009 Contrary to international developments the overall conclusion is that 2009 was a positive year for the local construction sector. Several major projects were completed including the Hyatt Hotel, a new wing at the local university, a new building for one of the largest local banks and several expansions of hotel

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complexes. Many important construction activities in the last couple of years were tourism- related, as the hospitality sector expanded rapidly. Usually the development of tourism areas triggers other infrastructural works, which was also the case in 2009. There were also infrastructure works that were implemented in combination with residential housing projects. With respect to the Social Economic Initiative (SEI), preparations were made for several (infrastructural) projects that will be implemented in the course of 2010. One of these SEI projects that have been completed is the Piscadera fishing port.
Table 2.4
Building permits approved Building Permits Issued Estimated Value of permits Issued (millions NAf) Buildings Completed Estimated Value of buildings completed (millions NAf) Source: CBS, 2009 2004 694 603 130.16 504 73.53

Building Permit Statistics

2005 852 695 156.33 1002 63.30 2006 1132 929 362.75 982 155.81 2007 1046 900 317.88 978 108.13 2008 1156 1069 441.81 747 166.11 2009 992 876 307.07 767 105.91

The building-permit statistics in the above table are in line with the overall conclusion that developments during recent years were positive and stable. In 2009, the number of permits issued was somewhat lower, with a total value below that of the previous year. The number of buildings completed in 2009 was slightly higher than in 2008. The next table provides information on the use of important raw materials during recent years. The index figures for 2009 concur with actual developments, with sales only slightly lower than in the year before. Only the use of asphalt and bricks was clearly higher in 2009 as compared to 2008, reflecting increased infrastructural works.
Table 2.5
Mijnmaatschappij Sand and road metal Cement (delivered to BIB 49) Concrete Industry Brievengat Concrete Building Blocks Bricks Asphalt Plant Asphalt Source: company Janssen de Jong, 2009

Index figures raw materials

Year Index Index Index Index Index Index 2005 100 100 100 100 100 100 2006 104 127 146 120 109 72 2007 122 141 150 139 146 120 2008 129 151 169 150 148 90 2009 127 137 152 140 168 136

49

BIB Beton Industrie Brievengat (concrete industry Brievengat)

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Outlook 2010 Shortage of technical workers During the first half of 2010, the refinery experienced several difficulties that caused them to temporarily shut down large parts of the plant. The management then decided to use the opportunity to accelerate the maintenance projects planned for this year. This led to an increased demand for skilled workers which could not be fulfilled locally on such short notice. In addition during the same period the drydock company also had to cope with a shortage of skilled workers. As a consequence of these developments foreign workers were contracted for these positions. The main cause of this shortage is a change in the vocational school system.. The change in the vocational school system involved the removal of the lower technical vocational schools which supplied the labor market with full-fledged carpenters, masons, tillers and other craftsmen. Besides that, employers are also unfamiliar with the new vocational-school system and how it compares to the former technical school. According to the Antillean Contractors Association, the uncertainty surrounding the long-term prospects of the lease contract between the operator of the refinery (PDVSA) and the government is a concern for local construction companies. The current contract will expire in 2019. Competition remains stiff in this sector and is even on the increased as foreign construction companies, especially those from Venezuela, also participate in bids for projects in the refinery. The Antillean Contractors Association calls for stricter business- licensing requirements for such companies. An important project that is currently in the implementation phase is the urbandevelopment plan for the area of Scharloo Abou. This project includes the building of new dwellings, roads and other facilities, such as a child-care center. The total cost of the project is NAf 9 million. This project is included in the SEI program.

2.3 TRADE SECTORS 2.3.1 WHOLESALE AND RETAIL TRADE International Developments Consumer behavior is rapidly changing worldwide. This is according to IBMs institute for Business Values (IBV), who recently conducted a survey of about 30,000 consumers worldwide. Because of the global slowdown that hit the world during the 4th quarter of 2008, consumers all over the world became more

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demanding towards products and developed a smart consumption style, becoming much more conscious as to the products they are buying and consuming. Consumers nowadays can and do use modern technologies to obtain more information about retailers and their products and base their buying behavior on this. Despite the economic recession, the BRIC50 countries, which are Brazil, Russia, India and China, saw more economic movement. This recession nonetheless slowed down the growth in these countries, but they were able to withstand the crisis because of having built up strong consumer demand since 2001. This increased the demand for commodities like sugar, rice and coffee worldwide and, in turn, resulted in an increase in prices too.51 As a result of the global slowdown and increasing prices, there is a new global trend in the international wholesale market: that of applying reverse or forward integration strategies in this sector. This strategy has shortened the supply chain and makes it easier for the wholesalers to purchase and put their products on the market, reducing costs and working more efficiently. Furthermore, FRICH52 is a fund launched by the UK Governments Department for International Development to support the development of trade in food from Africa and other developing countries, mainly to the UK. They are working towards increasing cooperation between farmers in poor countries and supermarkets and retailers in order to enhance their quality of living and build and maintain a reliable supply chain from these countries. These types of cooperation might be seen more and more in the Americas, were importers strive to work with farmers or with exporters in order to assure a better supply chain to ultimately provide the customers with more reliable and constant sources. Local Developments in the Wholesale Sector The wholesale and retail sectors are two fully developed areas of the Curaao economy which saw a dramatic change in consumer spending and behavior in these last two years. The number of companies operating in this sector gives us a better understanding of how well-developed the wholesale and retail markets are on the island. As we can see in the table below, which contains recent figures from the Curaao Chamber of Commerce, the wholesale-and-retail sectors play an important role in Curaaos economy.

50 51 52

The 4 fastest growing economies in the world: Brazil, Russia, India and China Source: www.euromonitor.com/BRIC_economies Source: Food Retail Industry Challenge Fund website

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Figure 2.5

Amount of companies in different sectors

Source: Chamber of Commerce

This is mainly because of the fact that Curaao imports most of its products from the Americas, Europe or neighboring islands. This is why Wholesale and Retail account for almost 14 percent53 of Curaaos GDP, as the second-largest sector contributing to the local economy after Financial and Insurance Services, as depicted in figure 2.6 below. The reason for the Financial and Insurance Services sectors huge size is Curaaos wide experience in financial services and highly skilled workforce 54.

Figure 2.6

Share of wholesale and retail in Curacaos GDP

Source: CBS

Several events, like the Venezuelan Bolivar-tourist boom and the economic crisis, brought about a change in the wholesale and retail sector on the island. These
Source: Central Bureau of Statistics of the Netherlands Antilles(CBS) Source:Central Bureau of Statistics of the Netherlands Antilles(CBS); most-recent figures are from 2008
54 53

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changes were not necessarily bad, but helped much to increase consumer prices on the island. Since then, some retailers in the food sector have closed their doors, but others that were already there took over their market share and saw an increase in sales. There was also a boom in small mini marts opening all over the island. The local wholesale market was disappointed with their performance during the year 2009, because sales decreased by 5-6 percent in that period, after a peak performance in 2008. The outstanding performance of 2008 in the food sector was mainly due to the high level of economic activities in the tourism sector (Venezuelans and Dutch stay-over tourists) However, overall retail prices did not only skyrocket in 2008 because of high consumption, but also because of the high fuel prices during that year 55. These prices remained high during 2009 also, and reflected a higher inflation rate than that of the previous year. Furthermore, Venezuelan tourists jumpstarted a flow of capital that in turn boosted sales in many other spin-off sectors such as Accommodation and Transportation, primarily for car rentals and taxi usage56. Wholesalers played a big role in this, satisfying the tourism sectors high demand for food products. But just as many other sectors, they experienced a fall in sales during 2009, because of the recession that hit the world in the 4th quarter of 2008. The economic slowdown transformed the customers of the wholesale and retail sectors, making them more price-sensitive. Customers even started to experiment with other low-priced goods which could provide them with the same value as higher-priced goods57. According to supermarket owners, they had to take action and start importing their own cheaper products to be able to offer a wider selection to their customers. Other players in the local wholesale sector profited from 2008 and 2009, with a slightly lower profit than in 2009 as compared to 2008, but still showing positive figures. In 2009, many of these big players realized the need for streamlining their processes in order to reduce costs in the areas that they could afford to do so. These other players were also affected by the high cost of the euro, because their primary products were Dutch imports coming directly from Europe. The appreciation of the euro against the US dollar put these at a disadvantage as compared to products purchased in the US and the region. Wholesalers are also facing direct competition from their own customers. The same retailers that buy from wholesalers are looking for new products to offer on the market, bypassing the wholesalers. These retailers also sell bulk products in small quantities to local restaurants, taking away sales from wholesalers, and the latter are going through tougher times trying to keep up with the fierce competition.
55 56

Source: www.centralbank.an; Quarterly Bulletin 2008-III According to representatives of taxi drivers and car-rental companies 57 According to representatives of the wholesale and retail sectors

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Local Developments in the Retail Market Looking at the food-retail sector, it can be concluded that there is fierce competition in this sector. The retail sector can be split up into two groups: big supermarkets and smaller (mini)markets. There is competition going on between the supermarkets and mini marts as well as within each of these groups. Competition is based basically on price, location, quality of products/services and product availability. One of the main manifestations of this competition within the sector are opening hours. Supermarkets usually open during the week, until 7 pm and on Saturdays until 9 pm, but minimarkets stay open every day until 9 pm. The changes in consumer spending allowed for more super/minimarkets to open, mostly Chinese-owned local grocery stores that sometimes sell at lower prices than the supermarkets. These Chinese grocery stores also have a competitive advantage over their bigger competitors because of their late closing times and low wage costs most of the time, the owners themselves work in the stores. Working late hours allows them to achieve higher turnovers as compared to larger supermarkets that have to close earlier. Besides the competition between supermarkets and mini marts, there is another factor influencing the prices end consumers are paying. This factor is an external problem to this sector and lies with a problem at the Curaao Ports Authority (CPA) with the chassis capacity for containers. This lack of chassis is a bottleneck at the CPA58, and is why containers which are brought in by importers of food and other products have higher costs, which add up to the final product, driving up the price. According to other players in the retail sector, there are still possibilities to enter the food-retail market on the island. The key to enter is to have a better approach to sales and product differentiation. Currently, the food retailers approach is salesoriented. They buy bulk products in containers, disregarding actual demand for the product, whereas other players in the food sector use a purchasing-oriented approach, applying statistical information to predict sales. This method allows the retailer to avoid unnecessary costs for products that will not be sold. Another very active retail sector is Clothing and Apparel. According to the Downtown Management Organization (DMO), revenues in the downtown area (Punda) retail business, consisting of mainly clothing, electronics and jewelry stores, dropped when the number of Venezuelan tourists decreased. This decrease was caused, among other things, by the restriction set by the Venezuelan government agency CADIVI59 and the adjustment in the Venezuelan Bolivars exchange rate (devaluation of the Venezuelan Bolivar against the US Dollar), making it less
58 59

Source: Plan D2; Chassis Capacity Study 2009-2010 Comisin de Administracin de Divisas - Commission for the Administration of Currency Exchange

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attractive for Venezuelan tourists to come and use their credit cards here on the island. The downtown area was the most affected, seeing a huge decrease in sales, because that is where most of the tourists used to shop for electronics and jewelry. Outlook for 2010 and Beyond The year 2011 is expected to be more or less the same as 2010: not much growth is expected, due to fact that most of the players in this sector are waiting for Curaao to obtain its new status within the Dutch Kingdom. Furthermore, there are no developments expected in Venezuelan tourism, which has already decreased by almost 54 percent60. And concerning Dutch tourism, which also slowed down because of the depreciation of the euro against the dollar, no major developments are expected either. 2.3.2 ECONOMIC ZONES AND E-COMMERCE International Developments Export-processing zones (EPZs) or Economic Zones (EZs) are those regulatory spaces in a country aimed at attracting export-oriented companies by offering these companies special concessions on taxes, tariffs and regulations. Over the past years, EZs have grown in terms of their numbers, the number of countries offering them, their size and in terms of the scope of industries they comprise. This expansion has occurred in the face of increasing economic and political opposition to EZs at the global level. The immediate goal is to generate foreign direct investment, exports, foreign exchange and employment that would not occur without the EPZ. WorldBank and other economists have been skeptical of EZs because of their distortionary nature, fearing that EZs may serve as safety valves that create some jobs and exports but allow a postponement of economy-wide liberalization61. And the ILO (International Labor Organization), which has monitored and scrutinized labor conditions in EZs for almost 30 years, continues to be concerned about the lack of decent work created in such zones62. Despite the international skepticism, and supported by the fact that the EZs in Curaao are functioning merely as a customs depot with no processing/manufacturing, EZs on Curaao have a very important role in realizing the Logistic Hub Vision:

Curaao Tourism Bureau (CTB) The term safety valve is from Madani (1999). Some examples of the economic theory perspective: In the economic theory, EPZs are a second-best optimum, consisting in offsetting the removal of one distortion (a customs duty) with the introduction of another (a subsidy), Cling et al. (2005), or An EPZ is not a first best policy choice. The best policy is one of overallliberalization of the economy, Madani (1999) 62 See ILO (2005) for a recent study on decent work within the context of EPZ employment.
61

60

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By 2016, Curaao is recognized globally as one of the top integrated logistical hubs, offering trusted, value-generating services across the following areas: international financial services, information transfer, international trade, and sea and air port services63. Local Developments From 1957 until 2001, the only types of free-zones in Curaao were specially designated areas in which international trade (import, storage, assembling, displaying, manufacturing, repackaging and exportation of goods) was facilitated through exemption from import duties, excises and sales tax. At that time, the sector was focused on the distribution of goods from the USA, the Far East and Europe to the Caribbean and South America. In 2001, the government modernized the National Ordinance on Economic Zones64 by incorporating trade performed through electronic means of communication. Besides the fiscal infrastructure, a judicial infrastructure was introduced, the National Ordinance on Agreements via Electronic Channels65, which regulates the legal force of electronic signatures and agreements. The e-zone laws purpose is to stimulate the economy by attracting foreign exchange, and increase employment through the export of goods and services. In order to establish itself in an e-zone area, a company must comply with criteria established by the Department of Economic Affairs of Curaao, which issues the ezone license on behalf of the Government of Curaao. The tax facilities offered to e-Zone companies in the e-zones in Curaao are: 0-percent import, export and excise duties; 2-percent profit tax on export profits (the locally-applicable profit tax is 34.5 percent); 0-percent sales, land and property taxes. Currently, Curaao has 12 e-zones in operation66. Ten are focused on (trade-)services by electronic means, like internet gaming/gambling, auctions, delivery of IT services, and call-center activities like hotel & car reservations. The other two ezones, free-zone Koningsplein, which is adjacent to the harbor, and free-zone Hato, which is located next to the airport, are managed by the Curaao Industrial and International Trade Development Company N.V. (Curinde), a government-owned agency. The e-zone companies established in these two free-zones export more than NAf. 841 million67 collectively on a yearly basis. Monthly, large quantities of

63 64

August 2006- approved by the Executive Counsel of the Island Territory of Curaao Source: P.B. 2001, no. 18 65 Source: P.B. 2000, no 168 66 Air Side Office Park (HADCO) is not in operation. 67 Source: Customs/ Curinde N.V.

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containers with goods are imported, which are afterwards redistributed for export either by sea or by air. Free-Zone Koningsplein Approximately 100 companies are established in this free-zone, employing around 1.000 employees. The activities of e-zone Koningsplein are mostly harbor related, concentrating on the export of goods, like garments, clothing, cosmetics and shoes, primarily to Venezuela, Trinidad & Tobago, Colombia, Surinam, Jamaica and Guyana. The area has a surface of 23 hectares, with 82,170 m2 of construction, consisting of showrooms and warehouses. The substantial loss of space in the e-zone caused by the fires in 2007 has meanwhile been almost recovered and fully rented. The reconstruction of another building is in full swing and scheduled for completion in November of 2010. A new access control system was introduced to cater to the security needs in connection with the visitor-enrollment program at the free-zone. This 100-percent registration system of the flow of people entering and leaving the park greatly contributes to the necessary safety and security of the park. In total, Curinde invested about NAf. 7 million last year.
Table 2.6
year 2008 2009 2010

Recent total visitors e-zone Koningsplein

Total visitors 44,009 38,759 12,43968 Source: Curinde N.V.

Table 2.7
Country Venezuela Jamaica Trinidad & Tobago Haiti The Dominican Republic Guyana Surinam China Colombia

Countries of origin of the visitors.

2008 2009 2010 (up to May 31) 2,648 1,961 1,655 1,260 797 509 419 347 239 18, 225 12,491 8,497 7,122 3,858 4,007 2,822 3,010 2,058 2,000 1,201 1,268 716 1,102 719 856 540 561 Source: Curinde N.V.

Most markets stayed relatively stable, though visitors from Venezuela declined considerably, mostly because of the foreign-exchange restrictions in Venezuela. The
68

As of May 31

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effect of the decline in visitor numbers from Venezuela is weighty, that being FreeZone Koningspleins largest export market. Outlook for 2010 Free-Zone Koningsplein As Insel Air starts flying from Air Jamaica, steady increase in Jamaican visitors is expected during the following months, with a positive growth by the end of 2010. The number of people coming from Haiti is expected to decline as already can be inferred from the interim figures as of May 31. There are various causes at the root of this decrease, one of them being obstacles with regard to obtaining the necessary visa, while the recent earthquake will also have a big effect. Regarding visa requirements: Curinde jointly with the Directorate of Foreign Affairs organized regular presentations on this issue resulting in a drop as to the number of complaints. Because of the great economic potential for Curaao, Curinde formulated a strategic plan in accordance with the local governments aim to make Curaao an international trade center by the year 2016. The plan is now in the process of approval by Curinde NVs supervisory board. It is expected that Curinde will invest at least Naf. 5 million and that this will especially have a large impact on the promotion part of the e-zones. A problem for Koningsplein is that the area is full and there are no possibilities to expand the zone. For the further development of the free-zone, it is essential to have additional space available either by expansion nearby or possibly even by moving the free zone to another much larger location. E-zone Hato Airport The total number of companies operating within the airport e-zone exceeds 40, employing approximately 150 persons. Among the high-value products now being exported by established businesses are jewelry, gold, heavy equipment, medicines, pharmaceuticals, computers, excise goods and highly specialized products such as contact lenses and printing ribbons. In 2010, the construction of a new warehouse with a total surface of 2,050 m was finished. The Airport e-zone now consists of approximately 13,500m2 of building surface in 4 different buildings. Outlook for e-Zone Hato Considering the space limitations at the free zone Koningsplein, further growth is expected to take place at the airports economic zone. This guarantees building space for new e-zone activities. Potential bottlenecks are the dependence on

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adequate airlift, high utility costs and red tape in obtaining business licenses and in customs handling. Attention must also be given to cargo handling in order to synchronize and complete service cycles. Service e-Zones There are 11 service e-zones established on the island, with approximately 280 established e-zone companies. The e-service sector directly employs some 300 persons, mostly call-center operators and IT specialists. The indirect employment is much higher of course, if you recon the obligatory administration, the need for (IT) utilities, etc.
Table 2.8 E-zone E-Commerce Park E-Powerhouse New Haven e-Zone E-Trading House E-Zone Van Engelen EOCG E-Zone E-Zone Landhuis Joonchi E-Zone Hoogstraat E-Zone Scharlooweg E-Zone Annaschool
Source: Curinde N.V.

The established service e-zones E-zone operator Surface Exploitatie Maatschappij e-Zone 2,700 m2 Vredenberg NV E-Powerhouse NV 995 m2 I-Management NV 1,170 m2 E-Trading Suites NV 1,200 m2 E-Zone Beheer Van Engelen NV 160.2 m2 EOCG Offshore Services NV 820 m2 United Trust Company NV 298 m2 Exploitatie Maatschappij E-zone Curaao NV E-Zone Scharloo NV Exploitatie Maatschappij E-zone Vredenberg NV 1094 m2 854.2 m2 207 m2

Established 2001 2002 2003 2003 2005 2006 2006 2007 2009 2009

Last year, two new e-zones and their respective e-zone operators were appointed, eZone Scharlooweg and e-Zone Annaschool. Besides that, 108 new e-zone licenses where issued by the Department of Economic Affairs of Curaao on behalf of the Government of Curaao. Outlook for 2010 While the e-zone industry for both goods and services is a challenging one globally, it can be safely stated that, notwithstanding the difficulties, the sector is very supportive in realizing the Curaao Logistic Hub Vision. The E-zone is a good and marketable economic activity for Curaao, and with all the competitive advantages Curaao has, its potential is enormous. Its location at an interchange of submarine fiber-optic cables, its political stability, the establishment of the Caribbean Internet Exchange and the traditionally strong international

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financial sector are just some of the advantages that make Curaao a perfect place to conduct (e-)business. More bilateral treaties with different countries are anticipated, lessening the chance of companies losing their e-zone tax advantage due to double taxation. The sector is also awaiting the new fiscal structure that will inevitably be introduced when Curaao becomes an autonomous island-state within the Dutch Kingdom. An even more competitive fiscal regime for the e-zone sector and for the businesses in Curaao in general is foreseen. The scheduled date for the political and administrative restructuring of the Netherlands Antilles is October 10, 2010. It is expected that in 2010 at least two additional service e-zones will be appointed. However, because of the uncertainty on the consequences of the new fiscal structure, slightly fewer requests for new e-zone licenses are expected than the 108 submitted in 2009. 2.4. TRANSPORTATION SECTOR 2.4.1. AIRPORT International Developments69 Before the Icelandic plume of volcanic ash temporarily forced the closing of European airspace in April, international air travel and air freight were rising strongly. In March, international air travel, measured by RPKs (Revenue Passenger Kilometers), was 10.3 percent higher than a year earlier. Air freight, measured by FTKs (Freight Tonne Kilometer), was 28.1 percent higher. March of last year was the low point for international air travel, so the year-on-year rate this March measures progress since then. Freight markets are up by more than 30 percent from their late-2008s low. But such was the scale of the recession that both travel and freight markets are still one percent below early 2008 highs, implying over 2 years of lost growth. However, the pace of the upturn in demand during the first quarter of 2010 was very strong. Air travel was growing at an annualized rate of 9 percent. Air freight was growing at an annualized rate of 26 percent. Both of these are well above the 6percent trend growth rates and similar to the strong 1992 recovery from the 1990-91 recession. This expansion was surely knocked back in April, particularly for the European airlines, as a result of the airspace closures. According to IATAs estimates, the international RPKs will record a decrease of 4 percent.

69

Source: IATA

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The economic environment remains a stimulus to further expansion of demand for air travel and freight, although even that continues to be strongest in the emerging markets but weak in Europe. Airlines are now starting to bring back capacity to air travel and freight markets, but still at a slower pace than the rise of demand. Passenger capacity, measured by ASKs (Available Seat Kilometers), on international markets, was 2 percent higher in March than a year ago. Freight capacity, measured by AFTKs (Available Freight Tonne Kilometers), was up 5.3 percent. Load factors, seasonally adjusted, remain close to record levels on passenger markets and continued to rise to historically high levels on freight markets. This will help airlines turn the revival in air transport demand into improved financial performance. The bad news is that the pace of the upturn varies tremendously by geographical region with, notably, European airlines seeing the weakest first-quarter growth in air travel, at 4.3 percent, and in air freight, at 10.3 percent. This reflects the relative weakness of the European economies. At the other end of the spectrum, airlines in Asia-Pacific saw a 10.5 percent growth in first-quarter air travel and 35.9 percent growth in air freight as the economic recovery continues to show strength in this region. Middle-Eastern airlines are benefiting from regional economic growth and market share gains on long-haul routes to grow passenger traffic 25 percent in the first quarter and air freight by 34 percent. African airlines are now starting to benefit from the upturn, having lost market share. In Latin America, March passenger traffic growth was dampened by the earthquake in Chile, but freight growth remains strong. Developments in the Local Aviation Industry in 2009 For a small open economy like Curaao, reliable air connections to key markets are vital to economic development and growth. Also, to fulfill the ambition of becoming a logistic hub in the Caribbean, the aviation industry, which includes airlines, the airport and air-cargo businesses, enables international trade flows as it facilitates the movement of people and goods, and is the backbone of economic growth. As of January 2009, Curaao Airport Holding (CAH)as the owner of the airport approved the takeover of Alterras 51-percent share in Curaao Airport Investment (CAI) by A-port. A-port is comprised of Unique (Zurich Airport), the Brazilian Camargo Correa and the Chilean IDC. Unique operates the Zurich airport and is a privatized company which operates the national and international traffic hub that Zurich airport has become. Unique employs around 1,200 people. Together with its 180 airport partners, employing a total of about 20,000 people, Unique ensures the reliability of Zurichs public airtraffic infrastructure operations. In 2007, Unique handled more than 20 million passengers and 360,000 tons of freight. Camargo Correa is one of the leading entities and the largest Brazilian conglomerate, founded in 1939, with operations in infrastructure, real estate and cement. IDC is a Chilean-owned airport operator that

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works with Unique to maintain and operate airports and airport-related facilities in South America. The group manages airports in Chile, Honduras, Colombia and Bangalore, India
Table 2.9
Airline Aires Aserca Airlines American Airlines ArkeFly Avior Avianca Ezair Liat Continental Delta Divi Divi Air

Aircraft traffic at Hato airport

Frequency per week 3 3 14 5 9 5 35 3 1 1 (seasonal) 56 103 Aircraft type DHC-8 DC-9-31 B-737-800 B-767-300 B-737-200 MD-82 / Fokker 100 BN-2 DHC-8 B-737-700/800 B-737-700/800 BN-2 ATR-320 ATR-500 Fokker 100

Destination(s) Barranquilla Caracas/Sto. Domingo Miami Amsterdam Valencia/Caracas/Maracaibo Bogota Bonaire Port of Spain Newark Atlanta Bonaire Aruba Bogota Bonaire Caracas Cartagena St. Maarten St. Domingo Valencia GOL Brasilia/Sao Paolo Insel Air Aruba Barquisimento Bogota Bonaire Jamaica Las Piedras Puerto Rico Port au Prince St. Maarten St. Domingo Miami KLM/Air France Amsterdam Martinair Amsterdam Surinam Airways Paramaribo Port of Spain Tiara Air Aruba Toronto, Canada Ecuador Source: Curaao Airport Partners

1 135

B-737-800 EMB-100 MD-82 MD-83

7 4 3 21 Seasonal charters Seasonal charters

B-747-400 B-767-300 B-737-300 SD-360

Most airlines increase their frequencies on existing routes, and the AmsterdamCuraao route is now being served by multiple airlines. This has a positive effect for Curaao, since the euro, which is obviously stronger than the NAf, lures Europeans to our island.

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Passenger traffic at Hato International Airport set an all-time record in 2009, with a total of 1,465,898 passengers, according to Curaao Airport Partners (CAP). Figure 2.7 Actual passenger traffic at Hato airport
140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2007 2008 Transit Passengers Domestic Passengers Landings (Non Military) General Aviation

2009

Source: CAP

Table 2.10
Inbound Outbound Transit Total Weight Daily Average Source: CAP

Air Freight by weight (kg)

2006 5.470.649 3.902.929 6.009.805 15.383.383 42.146 2007 5.846.027 3.545.778 8.074.394 17.466.200 47.853 2008 5.395.834 3.283.988 6.656.997 15.336.819 41.904 2009 5.801.080 2.789.599 3.598.966 12.189.644 33.396

In malice of the positive developments in passengers travel, caution is advisable considering the dramatic reduction in cargo, by 20 percent. This plunge can partly be explained by rerouting, especially of flowers from South America to Europe because of KLMs changing its schedule to include more direct flights to and from flower-producing countries. The free-zone is importing fewer goods from abroad and there is a trend nowadays to transport goods by sea, which takes one or two days more to get here but is far more economical.
Table 2.11
Airline DHL LAS Amerijet Aero Sucre Source: CAP

Air Freight
Destination CCS-AUA Bogota Miami Bogota Frequency Twice daily Twice daily Once a week Once a week

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It is also interesting to know that we are getting some fuel stops by cargo carriers. Particularly because the Jet-A1 fuel that Curoil offers is very competitive, we currently have a Lufthansa MD-11 three times a week and a Cargolux Boeing 747 three times a week. Figure 2.8 General Aviation & Commercial Flights Development
25,000 20,000 15,000 Total 10,000 5,000 0 2006 2007 Commercial Flight General Aviation

2008

2009

Source: CAP

General aviation comprises all flights not considered to be operated by airlines, charter operators or the military. As can be seen in figure 2.8, general aviation at Hato shows a decline of 24 percent compared to last year. This decline requires studying to find out which factors played a role. Did it occur because the dollar tourism out of Venezuela ran out of gas? Is there not enough marketing for Curaao as a destination? Or is it just a general aviation trend? Outlook for 2010 International Aviation Industry Airline markets rose strongly at the end of last year and early in 2010, but growth remains concentrated in the emerging markets of Asia, Latin America and the Middle East, with benefits accruing mainly to airlines in these regions, highlighting the problems caused by ownership rules. Airlines in the large developed markets of Europe and North America face much more sluggish market growth. This 2-speed recovery in economies, freight and travel markets is reflected in the divergent performance of airlines in different regions. Helped by the strong year end, IATA adjusted its estimates for 2009 net losses from US$11 billion to US$9.4 billion.

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More significantly, IATA now forecasts smaller losses in 2010, of US$2.8 billion, compared to IATAs previous forecast of US$5.6 billion, with the largest improvements benefiting airlines in Asia and Latin America. One notable change has been to average traffic growth, which is now expected to be much stronger in 2010with a 5.6-percent rise in air-travel volumes and a 12percent rise in air freightmostly due to the very strong recent gains. In addition, forecasts for economic growth in 2010 have been revised up, with the notable exception of Europe, causing airlines in that region to be the poorest performing. As one of the most cyclical industries, it is not surprising that the financial performance of airlines is closely tied to economic growth in the network areas they serve. But it is unique to this industry that those network areas are tied to local conditions. Although there has been further development of alliances, co-operation, joint ventures and some mergers & acquisitions, airlines are still highly dependent on the traffic generated by their local economies and trade lanes. This is in contrast to many of the companies listed on major stock exchanges that generate their earnings from across the globe; these companies are not restricted by the market and ownership rules that constrain airlines. Local Aviation Industry The local aviation industrys focus for the coming year(s) will be on the development of code share partners with much bigger and stronger companies, like the latest Insel Air Gol code share deal. This will allow us to be much more present in the market. To meet international demands and remain in compliance with these standards, the runway has to be renovated. CAH and CAP are busy looking at how to realize this. CAH is also looking at the possibility to have passengers busses on the deck to drive the passengers from the terminal to the aircraft and vice versa. They also want to build a new passenger bridge and fix the one that is out of service as soon as possible. Curaao Airport Holding is looking into the possibility of creating a spaceport. There are two interested groups who have been on the island to give presentations. It is still unclear whether it continues. The intention is to complement the space port to space tourism to facilitate the development of a theme park a la Cape Canaveral in the U.S. Another positive development is the fact that the local airline company, Insel Air, will expand its regional destinations. The new destinations that Insel Air plans to start flying in 2010 are Barquisimeto, Caracas, Bogota, Medellin and Charlotte. Insel Air started this year with flights to Jamaica.

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As part of the Logistic Hub Vision, Curaao Airport Holding committed itself to align its strategies as much as possible with objectives agreed upon with the stakeholders of the aviation industry. The objectives are as follows 70: Objective 1: Alignment and commitment of strategic partners to the long-term vision of the Logistical Hub, with clear roles and responsibilities for its implementation. Objective 2: Developing Airport City to stimulate and facilitate the growth of the airport, the hub and the island economy. Objective 3: Developing and upgrading the airport-complex infrastructure based on mutually agreed strategies that support the airlift services necessary for a competitive logistical hub. Objective 4: Insuring high quality of services for airlift, cargo and services within the airport complex. Objective 5: Creating an airlift-development strategy that is supported by all strategic partners. Up to the present, the aviation policy and regulations for Curaao have been the responsibility of the Central Government. However, in the near future, when Curaao becomes autonomous, the island will be responsible for its own policy, regulations, air-traffic control, agreements and the granting of licenses to air carriers. This creates the opportunity to restructure the islands aviation policy, allowing it to become an attractive location for a regional and international origin and destination traffic and transshipment hub for both passengers and cargo between the continents of North and South America, as well as Europe and possibly Asia.

2.4.2 HARBOR The harbors overall performance for 2009 in comparison to 2007 shows a decline of 5.7 percent and in comparison to 2008 we observe a decline of 8.9 percent in harbor activities (see figure 2.9). The number of freighters and transshipment containers has declined. This is probably due to the hard competition from harbors like Colon and Jamaica, which have upgraded their harbor infrastructure to accommodate postPanama container ships. The number of tankers has declined by 14 percent in 2009 in comparison to 2008, and the total number of cruise ships has increased by 8.8 percent in 2009. The decline in freighters is due to the international financial and economical crisis, which affects the growth rate of world trade. Also, in the region, we notice alliances being formed between foreign shipping liners and local
70

Source: CAH operational plan

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terminals. Harbors in Jamaica, St. Maarten, Cartagena, Trinidad, Manzanillo and Colon are currently investing in the post-Panama infrastructure to bring their cargo handling up to par with the opportunities resulting from the opening of the new Panama Canal in 2014. The opening of the new Panama Canal also offers opportunities to the Curaao Ports Authority (CPA), which has already started a new company in Panama to render tugboat services. A memorandum of understanding has been signed between the CPA and the authorities in Panama, through which maritime knowledge, training and information (on trade, navigation and vessel traffic) will be exchanged. Also, the new cruise port in Colon, Panama which will start operation with a new Southern-Caribbean route, opens the opportunity for local ports to act as ports of call. Figure 2.9 Number of calls by ship type
3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 2007 2008 2009 Freighter Tanker Cruise Others Total

Source: Curaao Ports Authority

In table 2.12 we observe a slow decrease in TEUs. This has to do with the fact that less construction materials for hotels, apartments, houses and other commercial buildings were imported in the past year. Transshipment cargo, which is a changeable and sensitive market, has also declined.
Table 2.12
TEUs Local market Transhipment Source: Curaao Ports Authority 2007 97,271 81,544 15,727

Freight Cargo
2008 102,082 88,375 13,707 2009 97,913 86,766 11,147

In 2009, the investments made by Curaao Ports Authority were between 25 and 50 million guilders, with revenues of approximately 50 million guilders. There were 230 persons employed. For 2010, the same amount of investments and revenues are expected. The Kompania di Tou Korsou (KTK) is owned by the CPA. During 2009

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and 2010, the KTK invested about 42 million guilders in 3 new tug boats. These new tugboats are currently operational. The KTKs fleet currently consists of 7 tugboats (including the newly purchased ones) for local and international towage and 4 pilot boats to transport pilots, materials and persons to other ships. The number of persons currently employed by the KTK increased from 90 in 2009 to 115 in the year 2010. The increased investments by the KTK are mostly due to the fact that international demand for towage activities is growing. Due to the opening of the new Panama Canal, a new branch of the KTK has been established in Panama to render tugboat services. The KTK is currently also working on the ISO 9001:2008 certification, because for this company to compete internationally, its boats and staff need to suit the criteria and requirements established by international laws and maritime regulations. The KTKs contribution to the CPAs revenues was about 60 percent in 2009. For 2010, the same percentage is expected. With regard to the Curaaosche Dok Maatschappij (CDM), as in 2009, due to the international economic decline, orders for new ships are being postponed and repairs are only done if really necessary. Regarding investment projects, currently the CDM has no means to finance these. At present, the status of negotiations between the CDM and international companies interested in becoming strategic partners within the CDM is not officially known. Another stakeholder in the Harbor is Curaao Port Services (CPS N.V.) This container-port service company serves as an origin-destination port and serves the national market, the transshipment market and exports from the national market. In 2009, their investments were between 100,000 and 250,000 guilders, with revenues between 25 and 50 million. Outlook for 2010 and Beyond. Curaaos main port, the Port of Willemstad, accessed through the St. Anna Bay Harbor, through which vessels can enter the Schottegat Bay inlet, currently offers most port-related services and activities, including cargo docks, a dry dock, the refinery and other services. For 2010, the CPS expects a 2 to 3 percent decline in freight cargo. This is due to the strong competition by the free-zone in Panama, the completion of large construction projects and the tourism sectors decline. Beyond this year, it is expected that the number of freight cargos will increase due to the number of transshipment cargos which will have to be shipped from Curaao to Bonaire, and also due to the poor (transshipment) services offered in Venezuela.

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The CPA expects cruise-ship calls to decline from 234 in the year 2009 to 231 in 2010. The amount of passengers will also decline form 423,088 to 383,921. This decline is because the cruise ship Adventure of the Seas has been replaced by another ship, the Serenade, with a smaller capacity. For the years beyond 2010, it may be anticipated that once the expansion of the Panama Canal is completed in 2014, very large vessels will become the norm in Caribbean waters. This is an opportunity for Curaaos ports to evolve and grow in capacity to accommodate these larger vessels. Also, (possible) large construction projects in the Caracas Bay area may increase the number of cruise ships, cruise and stay-over passengers and the quantity of freight cargo, and also mean more work activity for the CDM. 2.5 TOURISM International Developments As expected, the negative trend in international tourism that emerged during the second half of 2008 intensified in 2009, according to UNWTO (World Tourism Barometer). This was as a result of the prolonged global economic and financial crisis, combined with concerns about the outbreak of the (H1N1) influenza virus. During the first part of 2009, only Africa and South America reported growth in the number of tourist arrivals, while all other sub regions registered declines. In the end, 2009 proved indeed to be a challenging year for the tourism industry; international arrivals declined by 4.3 percent. Fortunately, the first months of 2010 were characterized by an upward trend and, according to preliminary figures compiled by the UNWTO, growth has been positive in all world regions. After 14 months of negative results, a few countries are reporting even double-digit growth for the first months of 2010. International travelers did experience a serious disruption during this period, caused by ash clouds after the volcano eruption in Iceland. European airspace was partly closed for 2 weeks, resulting in serious losses for travelers, airlines, tour operators and other related sub sectors. The UNWTO world-tourism growth forecast for 2010 is of 3 to 4 percent.

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Local developments Figure 2.10 Cruise tourism

Cruise Statistics
140% 120% 100% 80% 60%
Cruise calls Source: Curacao Ports Authority *forecast Cruise passengers

From 2006 on, the number of cruise passengers has been increasing steadily, reaching a record of more than 420,000 in 2009. Unfortunately this trend will not continue in 2010; the predicted number of cruise passengers will be almost 40,000 short of last years total. The number of cruise passengers is expected to decline further in 2011 with another 11,000, reaching 376,745. The main reason for this decline is that one of our regular cruise lines (Royal Caribbean) reduced the number of calls, while using a smaller ship (Serenade of the Seas) for this itinerary. This combines with the fact that yet another cruise line, the Ocean Dream, reduced its calls from 51 to 36 in 2010. Introduction of New Room Tax In 2009, the government revised the Room-Tax legislation which dated from 1992. The interpretation of the new law is that all accommodations, including timesharing locations and apartments run by private individuals, are liable to room tax just like hotels. The revenues from this tax will be used for promotional activities for the island and will be fully incorporated into the Curaao Tourist Boards (CTB) budget. Hotel Development For the last couple of years, the number of hotel rooms on the island has been growing rapidly. Recently, the largest additions were the Renaissance Curaao Hotel

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& Casino in 2009 and, in 2010, the Hyatt Regency Curaao Resort. Another 530 rooms will be added to the stock during 2010, at about 10 different accommodations on the island. Partly as a result of the increase in the number of rooms, the average hotel-occupancy rate went down from 85 percent in 2008 to 75 percent in 2009, as registered by CHATA. The average hotel-occupancy rate for the first quarter of 2010 was 73 percent. Figure 2.11 Average Hotel Occupancy Rate

Occupancy rate

85 80 75 70 65 2005 2006 2007 2008 Percentage

2009

2010 *

Year

Source: CHATA

* January- April 2010

Stay-Over Tourism In the last couple of years, the local tourism industry outperformed its regional counterparts in terms of arrival growth figures. However, in 2009 the overall number of visitors plummeted by 10 percent and nights with 9 percent. Arrivals from Europe increased, but not enough to compensate for the decline from all other main markets. Luckily, the outlook for 2010 is moderately positive, with growth prospects of 2 to 3 percent for the Caribbean region, according to the Caribbean Tourism Organization (CTO). The CTB expects an overall decrease in total arrivals of about 4 percent in 2010, mainly due to the crash of the Venezuelan market. The Venezuelan market is expected to register a 58 percent drop in stay-over nights. In 2009, the total tourist expenditures amounted $ 311.26 million but for 2010 a decrease is expected reaching the level of $ 287.20 million. Increasing airlift to the island remains a high priority for the CTB, especially with the additions to the room stock during 2009 and hundreds more planned for this year. Negotiating with airlines proves to be a lengthy process, and new routes are planned in cautiously for future seasons, often after months of talks. Current negotiations in a preliminary phase include an airline from Panama.

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Table 2.13
North America South America Venezuela Brazil Suriname Colombia Caribbean Aruba Jamaica Barbados Trinidad and Tobago Dom. Rep Haiti Europe Netherlands United Kingdom Belgium Germany Italy Spain Others Total visitors Stay-over Nights Source: CTB

Arrival development in main markets

2008 50,924 172,820 148,890 4,215 6220 5,359 41,154 16,848 9,591 754 6,499 2,612 1,770 136,747 113,696 2,894 3,156 5,516 1,024 1,028 7,199 408,844 2,977,771 2009 42,055 130,310 104962 4,406 9108 6,164 36,291 16,571 7,052 850 5,239 2,609 1,784 148,450 126,209 2,100 3,685 6,806 722 838 9,731 366,837 2,696,798 % Change -17 -25 -30 5 46 15 -12 -2 -26 13 -19 0 1 9 11 -27 17 23 -29 -18 35 -10 -9

Europe Europe, and more specifically the Netherlands, is currently our largest and strongest market. In 2009, arrivals from Europe totaled 148,450 of which 126,209 were from the Netherlands. Despite the fact that arrivals from several countries decreased by double digits, the growth in tourists from Europe measured 9 percent as compared to 2008. In April of 2010 there were some disturbances in the flight schedule of European-bound flights due to the volcanic ash cloud, resulting in many cancellations, but on the other hand these distortions also caused a group of tourists to extend their stay on the island, forcibly. Preliminary figures from the CTB for the first quarter of 2010 indicate that arrivals from Europe increased with 7 percent as compared to last years first quarter. Countries with double-digit growth include

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Belgium (25%), Italy (15%), Norway (51%) and Spain (45%) amongst others. The Italian airline company Blue Panorama will start charter flights between Milan and Curaao. Hopefully, this new charter connection staring in July of 2010 will further increase the number of tourists from Europe. North America In 2009, this markets performance was greatly affected by the prolonged financial and economic crisis in the US. Arrivals from the North-American market amounted to 42,055 in 2009, translating to a 17 percent drop compared to 2008. Fortunately, the first quarter of 2010 proved to be a turnaround for the US market, marking a 31percent increase in arrivals. Airlift from the US continues to be a challenge, as USbased airlines are cautious in adding or even maintaining existing flights. Local airline Insel Air has daily flights to Miami, mostly carrying locals and Venezuelan transfer passengers. Insel Air will possibly start executing flights from Charlotte in cooperation with US Airways, which will further improve airlift to the island. The interline agreement between Insel Air and US Airways will facilitate connections to all parts of the United States. The CTB expects the US market to end up with a 19percent growth in 2010 which will be a significant improvement compared to 2009. South America As a result of monetary and travel restrictions imposed by the Venezuelan government, arrivals from this market took a nose dive in 2009, resulting in a loss of one third of arrivals. Several other South-American markets also showed a dramatic decrease last year, including Ecuador (-45%). The overall drop in arrivals from the South-American market was 25 percent, and the short-term outlook remains negative as Venezuelan arrivals in 2010 are expected to be less than half of last years total. This is already noticeable in figures for the first quarter of 2010, with dramatic decreases in Venezuelan arrivals. Despite the fact that some smaller SouthAmerican markets registered growth (including Brazil and Suriname), that cannot mitigate the effect of the Venezuelan market. The weekly flights from Brazils capital by airline Gol seem to be yielding positive results, with a 188-percent increase in arrivals during the first quarter of 2010 as compared to last years first quarter. The CTBs strategy is to increase marketing in other South-American markets besides Venezuela in order to further boost arrivals from that continent. Hopefully, during 2010, Insel Air will add four new South-American destinations to its flight schedule. The new destinations are Caracas, Barquisimeto, Bogot en Medellin. Caribbean Total arrivals from the Caribbean region dropped by 12 percent in 2009. Especially arrivals from Jamaica were affected, as Air Jamaica stopped its flights to Curaao

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last year, while Haiti was hit by the devastating earthquake in the beginning of 2010. Insel Air re-established airlift from Jamaica in June of 2010, hopefully boosting arrivals for this year. As for this quarter, an increase in arrivals from the Caribbean region is already being seen, in line with the CTBs 8-percent forecast for 2010. 2.6 FINANCIAL AND BUSINESS SERVICES SECTOR 2.6.1.COMMERCIAL BANKS Local Developments in 2009 and 2010 The international financial crisis had a limited effect on our economy and the financial sector in general in 2009. For the hospitality sector, visitor arrivals in the tourism sector declined by 10 percent in 2009 as compared to 200871. The construction sector also experienced a slow down, despite the ongoing big projects like the completion of the Renaissance and the Hyatt Hotel, the construction of the new Maduro & Curiels Bank premises, the new parking garage in Downtown Punda and the construction of real estate, like houses and resorts. The commercial banks managed to stay competitive and generated profits despite the economic challenges. The government-debt restructuring program was initiated in 2009, resulting in the cancellation of the outstanding government debts by the Dutch Government. Consequently, the local government stopped issuing bonds in April 2009 and paid out matured bonds. Liquidity Surplus By the end of 2009 and into the beginning of 2010, the local commercial banks, as the main treasury holders, were confronted with a major liquidity surplus as a result of the matured government bonds being paid out. This surplus put pressure on the interest rates, which lead to a reduction in interest rates on deposits and loans. Considering the fragile international money markets, the local commercial banks focused on investing their cash locally by offering attractive long-term and shortterm loans with lower interest rates. Residential mortgage interest rates dropped from 8.6 percent to an average of 6.5 percent 72. Interest for personal car loans dropped from 5 percent to 3 percent on average for new cars. Similar declines have taken place in commercial lending rates. A variety of personal loans was extended and the local banks competed heavily to gain market share on retail customers. Savings and deposit rates also declined to an average of 1 percent on personal savings accounts and 2 percent on deposits.
71 72

Source: 2009 Statistics Curaao Tourist Board Source: Financial Highlights 2009, Maduro & Curiels Bank N.V.

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Some commercial banks opted to invest their cash into strengthening their solvency position73. Others chose to improve cost efficiency to remain profitable 74. Some others focused on supporting and educating their clients in the SME sector. More loans were extended to new small businesses. We can conclude that the government-debt repayment has not benefited the commercial banking sector. The liquidity surplus has led to a less-than-favorable situation for the commercial banks. They were forced to drop interest rates, which means lower revenues from interest. For the coming months we expect the interest rates to remain unchanged.
Table 2.14
Banks

Overview Key Financial Figures 2009/2008

Assets in 2009 Assets in 2008 Liabilities in 2009 Liabilities in 2008 Net income after tax 2009 119,136 45,624 19,014 12,404 Net income after tax 2008 144,853 60,477 10,091 11,398

MCB Bank

5,843,210

5,425,111

5,343,473

4,972,311

4,099,207 3,939,406 3,697,784 3,567,008 RBTT Bank 1,449,344 2,433,668 1,236,415 2,227,325 Banco di Caribe 1,377,620 1,339,664 1,274,397 1,248,845 Girobank Source: Annual reports MCB, RBTT, Banco di Caribe and Girobank

Table 2.15 Banks

Specification of Accounts Gross Loans & Gross Loans & advances to customers advances to customers 2009 2008

Customers deposits 2009

Customers deposits 2008

3,257,709 3,114,654 MCB 2,295,993 2,266,210 RBTT 754,430 820,733 Banko di Caribe 419,408 422,757 Girobank Source: Annual reports MCB, RBTT, Banco di Caribe and Girobank

5,117,338 3,210,427 1,208,715 1,102,759

4,705,540 3,131,053 1,028,246 1,062.059

Consumer Spending The excess liquidity has also had an indirect negative effect on consumer spending and will slow down economic activities. The aggressive borrowing that was promoted by the banks in 2009 and 2010 has persuaded many consumers to borrow money from the banks for unnecessary spending, such as on vacations and luxury
73 74

Source: Consolidated Financial Highlights Dec 31, 2009 Girobank N.V.

Source: Speech by Dr. E.Tromp, President of the Central Bank of the Netherlands Antilles, on the occasion of the official opening of the new headquarters of Orco Bank. April 10, 2010

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goods. However, these loans will have to be paid back on a monthly basis, consequently affecting the consumers net spending capital75. This weakening of purchasing power has affected local retail stores and banks in 2010. Retail stores in general have experienced a drop in sales and banks have likewise experienced a similar slowdown in the number of banking transactions in the first quarter of 201076. We can conclude that the banks excess liquidity has indirectly weakened the markets purchasing power in 2010 and will continue to do so in the coming years if no incentives are implemented to boost consumers income. Cutting direct taxes, e.g. the income tax, may be a way to stimulate consumer spending. New Developments Challenging times are ahead with the dismantling of the Netherlands Antilles. The BES islands will introduce the dollar as their monetary currency, which will also have implications for the commercial banks with branches on the BES islands. With the disappearance of the Antillean guilder and the introduction of the dollar as monetary currency, the banks will miss a substantial income on foreign-exchangeconversion transactions. There will be fewer buying and selling transactions for dollars, since all transactions will only be in dollars, and the number of currencyrelated transactions will also drop. Anticipating this new situation, the commercial banks have modified their networks to be able to adapt to the new situation, which has required some extensive investments in IT infrastructure. This will probably also have to be implemented for Curaao once the government has decided which currency will be introduced for the new Pais Krsou. With the new constitution, the government authorities are looking into introducing a new banking regulation on deposits. Each bank will have to keep a standard deposit capital with the central bank for security purposes. This will also influence banking costs in general and will have to be covered by raising banking fees. Outlook for 2010 Despite the economic challenges, the banks are looking very optimistically at the year 2010 and expect better results than in 2009. Expectations are that the economy will show a slight growth as compared to 2009 due to the recovery in the tourism industry and trade, which will generate more banking transactions for commercial banks.

75 76

Source: Interview with the Director of Girobank N.V Source: Interview with the Director of Girobank N.V

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2.6.2 INTERNATIONAL FINANCIAL & BUSINESS SERVICES Introduction The International Financial Services sector includes (tax) lawyers, insurance companies, fund management, security dealings and off-shore financial institutions specialized in international banking. Since the 1940s onward, the island of Curaao has been a major international financial center. However, since 2003, the island has encountered fierce competition from especially Panama and the Cayman islands. Indicators for this sector up to 2009 show a declining trend. According to the Curaao International Financial Services Association (CIFA), the years 2003 to 2009 were characterized by: A declining number of financial transactions; Stagnation of projects; Little interest in investing on the island. Despite the declining trend in the international financial sector, the sector remains one of the major pillars of the local economy. This statement is based on the following facts: Approximately 1,000 professionals are employed in the sector (employees in this sector are relatively well-paid in comparison with other sectors); Worth mentioning is the fact that during the Global Regional Meeting 2010, which was held in Curaao, statements were made that the contribution of the IFS was estimated at 16 percent of the gross domestic product; The sector generates foreign exchange; The sector contributes to the public treasury, being liable to taxation. Further analysis of the figures on taxes paid by the financial sector over 2007 and 2008 indicates a tax increase of approximately 21.1 percent as compared to 2006. Although there was a declining trend in the number of transactions for the financial sector, its contribution to the public treasury is substantial.

Developments in 2009 The Netherlands Antilles has signed tax treaties with several countries. Tax treaties are bilateral agreements with respect to taxes and aims to reduce double taxation and eliminating tax evasion. Worth mentioning is the fact that tax treaties are useful only when there is a substantial number of financial transactions or significant trade between two countries.

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The treaties signed by the Netherlands Antilles mean that we are willing to cooperate and exchange tax information with those countries in order to assist in the fight against (inter)national money laundering and terrorism. By 2009, the local government had met the conditions set by the Organization for Economic Co-operation and Development (OECD) by signing tax treaties with several countries. As a result, the OECD removed the Netherlands Antilles from their grey list. As of the end of 2009, the Netherlands Antilles appears on the OECDs white list. This appearance on the OECDs white list has a positive impact on the competitive position of the Netherlands Antilles in general and thus Curaaos in particular as an international financial center. Since its appearance on the white list of the OECD, more investors are willing to invest in the island. According to CIFA, there are at this moment slight signs of improvement in the sector in comparison to previous years. Furthermore, concrete actions are being taken regarding the official launching of the Dutch Caribbean Securities Exchange (DCSX) in 2010. The mission of the DCSX is to be an international securities exchange, listing and trading domestic and international securities. The DCSX was incorporated on May 5, 2009, and is licensed by the Ministry of Finance of the Netherlands Antilles and regulated by the Central Bank. The DCSX has been operational since the 5th of March, 2010. At this moment, the majority of services provided by the international financial sector are required on purely fiscal grounds, and those who invest do so driven by tax motives. Some local experts believe that in order to improve the competitiveness of the international financial sector we should modernize our products. This implies a mental shift; we should change from being a tax haven to being an investment haven, with special attention being given to more transparency and decisiveness. A global analysis of our financial sector indicates that its strengths are: A lot of expertise (accountants, lawyers, fiscals) Appearance on the OECD white list Excellent infrastructure Political stability Licensed exchange market Multilingual population (our professionals have the ability to express themselves in English, Dutch, French and Spanish fluently) Optimism in the sector Supervision by the Central Bank

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The weaknesses are: Unattractive legislation High tax rates Unattractive investment climate Inflexible immigration laws No new development of products or services for clients Conclusions 1. 2. 3. Our financial sector is not competitive enough in comparison to our neighbors in the region, such as Panama and Bermuda. Corrective actions should be taken in order to improve the competitiveness of our financial services through modernization of the products and services provided to clients. A mental shift is required in order to assure a leading position for our financial sector.

Outlook for 2010 and 2011 At the end of 2010, the Financial Action Task Force (FATF) will screen the local financial services sector. Actions are being taken in order to obtain a positive evaluation by the FATF. A positive evaluation is crucial for maintaining the good reputation of our international financial services. It would also mean that the Netherlands Antilles will remain on the white list of the OECD. On the international scene, the Netherlands Antilles appearance on the OECDs white list had the following positive impacts on the local financial sector: Increased confidence by investors More optimism in the sector Slight increase in the number of financial transactions Special attention should be paid to the fact that on October 10, 2010 the Netherlands Antilles will be officially dissolved; Curaao and St. Maarten will become separate countries, while Bonaire, St. Eustatius and Saba, the so-called BES islands, will be considered overseas Dutch territories. The BES legislation, which has many similarities with Dutch legislation, will become applicable on the BES islands. The CIFA indicates that it will follow developments regarding the BES islands very closely. In order to maintain our competitiveness, we should match the fiscal system of the BES islands. Like the CIFA members, the local government must become aware of the importance of our role as a financial center and take concrete actions to: Improve the financial climate by reducing red tape; Sign tax treaties with more countries;

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Give priority to the making and implementation of the corresponding laws and; Make immigration laws more flexible.

Expectations for 2010 are high. The members of CIFA are optimistic. The year 2010 could be characterized as one full of challenges and opportunities due to: Land Curaaos becoming a reality; the establishment of the BES islands; the official launching of the DCSX; the FAFT evaluation; the introduction of the BES legislation. CIFAs aim for the near future is to belong to the top five of world financial centers. In order to achieve this goal, special attention should be given to: Expanding the tax network Reducing profit taxes Constant upgrading of local professionals Further flexibilization of the labor market Delivering red carpet services 2.6.3 INSURANCE International Developments In the US, the insurance business is divided up into the life/health and property/casualty branches. Due to the financial crisis in the US, special attention was paid to the impact of this crisis on the insurance sector in that country. But supported by stimulative monetary and fiscal policies and the concerted efforts of policymakers to stabilize the financial system, a recovery in economic activity appears to have begun in the second half of last year. One factor that served as an important impetus to the expansion was firms' success in working down the excess inventories that had built up during the contraction, making companies more willing to expand production. Indeed, the boost from the slower drawdown in inventories accounted for most of the sharp rise in real gross domestic product (GDP) in the fourth quarter of last year, during which real GDP increased at an annual rate of 5.6 percent. With inventories now much better aligned with final sales, however, and with the support from fiscal policy set to diminish in the coming year, further economic expansion will depend on continued growth in private final demand. The World Insurance industry outside the United States is divided into life insurance (which is often used as a tax-saving option for the long term, i.e. life mortgages) and non-life insurance (also known as general insurance). The non-life insurance segment covers i.a. fire, burglary, health and motor insurance.

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The Insurance Industry in Curaao The insurance sector is an important segment in terms of jobs and income generated. This sector of our economy has a few unique features. Principal aspects are the small local market, concentrated competition, and the fact that expertise and services are mainly distributed through brokers. The principal insurance companies operating on the island are subsidiaries or branches of foreign insurance companies. The insurance industry in Curaao is divided up into the life insurance and non-life insurance segments. Local non-life insurance consists mainly of third-party insurance, property insurance and health insurance. The local insurance companies dominate the life-insurance market with a share of more than 75 percent, while international companies virtually own the non-life insurance market with a share of over 80 percent. In 2009, investments, turnover, employment and competition in the local market were approximately equal to the amounts and rates for 2008, as expected.
Table 2.16
Life 3 6 2

Overview Insurance Companies in Curaao

2007 Non-life 5 8 8 Life 3 5 2 2008 Non-life 5 8 8 Life 3 5 2 2009 Non-life 5 8 8 Life 3 5 2 2010 Non-life 5 8 8

Foreign subsidiaries Foreign branches Independent Source: Central bank 2010

Since 2007, the foreign subsidiaries offering life and non-life insurance have remained the same. On the other hand, the foreign branches offering life insurance decreased by one branch in 2008, and from then on remained the same. The table above illustrates the fact that the number of insurance companies remained more or less the same. This clearly shows that this segment of the economy is quite stabilized. Outlook for 2010 The upcoming constitutional changes, with the proposed debt relief, will make it tougher for the insurance companies to find suitable investment products on the market. Deteriorating international investment results, while locally a 4-percent return guarantee was provided by the insuring companies, can have implications for the solvency of these companies. Other important challenges are increases in healthcare costs and the fusion of the Social Insurance Bank (SVB), with the proposal to elevate the upper limit of salary, and the Foundation Bureau medical expenses services (BZV). This will have an adverse effect especially for the private insurers. Also, the impending introduction of the general health insurance plan (AZV) will influence the private insurance sector, because they are about to be trampled.

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The government can also contribute to the sector by creating an attractive investment climate for entrepreneurs (creating conditions to proceed), involving private insurers in implementing the AZV legislation, introducing full tax deductibility on private health insurance premiums and tightening the controls on existing regulations, including payment of premium car insurance. Internationally, central banks act as watch dogs of the insurance industry for the sole reason that, even though they are not as volatile as banks, they have to remain fundamentally strong to make sure that the basic function of insurance companies the orderly transfer of risk from client to insurercontinues without interruption. Insurers today continue to sell and renew policies, pay claims and develop new products to protect peoples property, businesses and retirement funds. The bottom line is that, unlike banking, insurance markets are functioning normally.

2.7 HEALTH CARE Introduction Healthcare spending around the world is rising at a faster rate than overall economic growth, so almost all countries have seen healthcare spending increase as a percentage of their gross domestic product (GDP) over time 77. This raises questions about how countries will pay for future healthcare needs. The causes of the increasing healthcare costs may be different, but there are some global trends such as aging, higher life expectancy, the appearance of new diseases requiring more research and new, expensive medication, the systems of financing and the progress of medical technology78. In the United States, where there is strong competition between suppliers and the intervention of the public sector is low, the share of GDP devoted to health care grew from 13.6 percent in 2000 to 16 percent of GDP in 200779. This is by far the highest share in the OECD and more than seven percentage points higher than the average of 8.9 percent in OECD countries 80. The Health and Human Services Department expects the healthcare share of GDP to continue its historical upward trend, reaching 19.5 percent of GDP by 2017. Important reasons for the U.S.s high spending are higher U.S. per-capita GDP, as well as a highly complex and fragmented payment system that entails high administrative costs 81. Despite the high
77 78

Healthcare spending in the United States and OECD Countries Source: Efisiensia den Balansa, Deloitte and research from WHO and PAHO 79 Source: OECD health data 2009 80 Disparities in health expenditures across OECD countries (30 September 2009) 81 Source: U.S. Health Care Spending In An International Context, 2004

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level of spending, the U.S. does not achieve better outcomes on many important health measures. In 2000, the Netherlands spent 8.0 percent of its national income (GDP) on health care, and this percentage grew to an estimated 9.8 percent in 2007. International Comparison In the OECD countries, the role of the public sector is significant and the amount spent on health care lies around 8 to 10 percent of GDP. Almost all OECD countries, with the exception of the U.S. and the middle-income countries, Mexico and Turkey, have full insurance coverage for their populations. Americans consumed $7,290 of health services per person in 2007, almost two-and-a-half times more than the OECD average of just under $3,000. In most countries, healthcare spending is largely financed out of taxes or social-security contributions, with private insurance or out-of-pocket payments playing a significant but secondary role. The richer a country is, the greater the amount of money it devotes to its health care. If per-capita income is around $ 20,000, a country is expected to spend about $1,500 per person on health, whereas if per-capita income is $40,000, health spending of a bit more than $3,500 would be predicted82. The following table shows a few important health statistics of the OECD countries.
Table 2.17
Country Austria France Germany Hungary Mexico Netherlands Norway Poland Switzerland United Kingdom United States A83 10.1 11.0 10.4 7.4 5.9 9,8* 8.9 6.4 10,8* 8.4 16.0

OECD country comparisons of some health statistics

B84 3763 3601 3588 1388 823 3837* 4763 1035 4417* 2992 7290 C85 76.4 79.0 76.9 70.6 45.2 na 84.1 70.8 59.3 81.7 45.4 D86 3.8 3.4 3.5 2.8 2.0 3.9 3.9 2.2 3.9 2.5 2.4 E87 7.8 7.1 8.2 7.1 1.7 4.5 3.5 6.4 3.5 3.4 3.1 *=estimates

F88 80.1 81.0 80.0 73.3 75.0 80.2 80.6 75.4 81.9 79.1 78.1

Source: OECD health data 2009

82 83

Disparities in health expenditures across OECD countries (30 September 2009) Health care costs as % of GDP 84 Per capita expenditure on health (USD) 85 % of health costs paid by government 86 Physicians per 1000 people 87 Total hospital beds per 1000 people 88 Life expectancy

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The Healthcare Sector in Curaao: Some Figures The rise of healthcare costs is also a problem in Curaao. The total costs of health care are estimated at 13 to 14 percent89 of GDP. There is a structural deficit in financing healthcare costs. Research shows that total healthcare spending had an annual growth of 4 percent over the 2000-2004 period90. In the tables below, more recent data on medical costs incurred by the Social Insurance Bank (SVB) and the Health Cost Bureau (BZV) are described. The SVB data do not include costs such as administration costs and costs for loss of income due to illness. The total medical costs of the SVB increased by 34.2 percent between 2005 and 2008, and the average medical costs per insured increased by 16.6 percent between 2005 and 2008.

89 90

Source:Strategisch plan Gezondheidszorg Curaao 2007-2010 Source:Integraal zorgbeleid: basisconcepten (15 december 2008)

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Table 2.18
NAf x Millions Health care field Pharmacies/ medical devices (NAf) General practitioner(NAf) Hospital health care(NAf) Laboratory(NAf) Ambulance(NAf) Preventive care(NAf) Paramedics, midwifes and alternative medicine(NAf) Specialists(NAf) Dentistry(NAf) Home care(NAf) Medical dispatches Total medical cure costs Curacao (TMCC) (NAf) SVB expenses(NAf) Funds administration (NAf) Total Premium Income(NAf) Total EGV* expenses Increase (%) of total costs compared to previous year Number of insured per 1 July Premium Income per person(NAf) Average costs per insured person(NAf) Increase (%) in average costs per insured Source: Beleidsbegroting BZV

Curacao Medical costs of cure BZV

PP-Patients 2008 2009 46.7 47.9 4.6 49.9 5.9 1,9 0.65 2.8 11.2 1.9 8.1 10.3 144 (4.80) 139.2 4.2 52 5.8 1.6 0.44 2.8 11.4 1.8 8.3 4.9 141.4 (0.22 ) 141.1 20.4 21.4 0.48 13.2 (4.9) 8.3 0.48 13.5 (4.9) 8.7 Civil servants 2008 2009 5.3 5.4 1.5 4.9 1.4 0.078 0 1.1 2.9 1.3 46.2 1.7 20.4 1.6 5.5 1.3 0.066 0.088 1 3,1 1.4 0.031 1.6 21.4 Retired ex servants91 2008 2009 4.7 4.7 0.280 4.2 0.661 0.094 0 0.191 1.4 0.188 0.252 0.659 12.7 0.270 4.4 0.668 0.136 0.044 0.184 1.4 0.184 0.252 0.766 13.1

3% 35347

1.4% 32762

5% 9663

5.1% 9358 7699 (0.003) 8,262 (0.003 ) 0.005 9.4%

3,937 3%

4,308 9.4%

2,108 na

2,287 8.5%

0.005 na

91

Retired workers from Royal Dutch Shell who were making use of the bankrupted National Health Service`Asosiashon Kuido Mediko and retired Dutch Caribbean Airlines workers

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Table 2.19 Total medical costs of Social Insurance bank (SVB)

Health care field (NAf) Pharmacies/medical devices General practitioner Hospital health care Laboratory Other Paramedics, midwifes and alternative medicine Specialist Dentistry Home care Total medical costs Curacao (TMCC) Increase (%) of TMCC compared to previous year TMCC as % of TMC SVB Netherlands Antilles Average number of insured Average medical costs per insured person Increase (%) in average medical costs per insured Source: SVB 2005 24,316,763 8,358,686 34,045,592 6,101,327 2,616,057 3,422,761 12,482,650 309,944 184,621 91,838,401 na 71.6% 65,466 1403 na 2006 25,650,157 8,681,358 34,586,295 5,846,842 3,996,889 3,388,204 13,905,143 208,287 200,161 96,463,337 5.0% 70.8% 67,756 1424 1.5% 2007 28,835,122 9,060,483 38,769,807 8,200,888 4,257,592 3,792,810 14,804,958 375,514 162,258 108,259,432 12.2% 73.6% 71,513 1514 6.3% 2008 32,581,045 10,278,547 43,701,211 9,763,095 8,466,381 3,479,208 14,780,310 8,221 150,807 123,208,824 13.8% 71.3% 75,332 1636 8.0%

The Healthcare Sector in Curaao: Insurances Several health-insurance systems exist in Curaao. The Social Insurance Bank (SVB)sponsored by the Central Government of the Netherlands Antilleswhich has a branch on each of the five islands and is headquartered on Curaao, provides health-insurance coverage for employees of nongovernmental organizations and the private sector. The costs of health-insurance benefits are covered through the premium system. The premium system implies that the employer, the government and the employee each contribute to covering the health costs. The health-insurance premium is 12.5 percent, of which the employer contributes 8.3 percent, the employee 2.1 percent and the government 2.1 percent. Pro-Pauperi (PP) Insurance is a health-insurance coverage provided by the Island Government of Curaao for the unemployed and the population up to a stipulated maximum income. Civil Servant Health Insurance is provided by the island territorial governments. Both PP-insurance and civil-servant health insurance are provided by the Health Cost Bureau (BZV). On the other hand, private health insurance is mandatory for people earning an annual income which exceeds a stipulated maximum income (NAf. 57.174,00 per

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year for 2010). SVB and BZV together comprise approximately 84 percent of the healthcare sector of Curaao92. Healthcare Sector of Curaao in More Detail The rising costs in the healthcare sector in Curaao require new measures to achieve a manageable system of purchasing health care. This need keeps growing because of the aging population93, which drives up healthcare spending through the demand side, the shrinking base of the workforce that needs to pay for the costs and the open-end character of the insurance policy (with no personal liability or maximum consumption) for the different groups of the insured people who have few incentives to save on costs. There are many reasons to mention for the high healthcare costs. Below, the most important ones are described: Healthcare policy In the last couple of years, the government has been paying more attention to the health sector and many plans and policy papers have been written. Although not all the plans and reports have led to clear and coherent policies yet, the Government is in the process of implementing some of the policies proposed. A coherent healthcare policy will lead to transparency, clearness, less resistance and cost reductions. For example, for many years there was no policy for the establishment of practices by general practitioners, leading to an uncontrolled increase in their numbers. Beside the fact that there was no policy on the required number of such practitioners, there were no structural rules on quality either. Any medical-school graduate could practice as a general practitioner. It was not mandatory, for instance, for them to have completed their specialization as general practitioners. This may result in their referring patients more often and sooner to a specialist, which leads to unnecessarily higher cost in secondary care94. The Organizational Structure of the Healthcare Sector The organization of health care in Curaao is not very well integrated 95, meaning, among other things, that there is not enough cooperation between the different players in the healthcare field. Decisions by the government are made mostly ad hoc. There is a variety of legislation in place to organize the health sector, making the structure complicated and less transparent. The information is not linked to any central system, which makes it very difficult to have any control or to make decisions. At the same time, the lack of adequate and up-to-date data (for example:
92 93

Source: Strategisch plan Gezondheidszorg Curaao 2007-2010 In 2025, if the trend continues unchanged, approximately 25.6 percent of the population will be older than 60 years. In 2009 this percentage was 17 percent. Source: www.cbs.an 94 Source:Santu Remedi, Een vestigingsbeleid in de Gezondheidszorg voor het Eilandgebied Curaao 95 Source: Pijnlijike keuzen bij schaarse middelen: De gezondheid nader bekeken, 2002

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economic health data, usage data or more care-related data) and accessible registration hamper a thorough analysis of the health system 96. Another organizational-structure problem is the fragmentation of the healthcare institutions and the fact that most specialists have no close links to the hospital, because of also having their own practice (the so-called ofisinas). With the construction of the new hospital, it is the intention of the government to turn it into a medicallyspecialized integrated business (Medisch-Specialistisch Geintegreerd Bedrijf) with all specialists working together. From that moment on, activities outside the hospital should no longer be covered. Finally, another factor that leads to high costs is the structure of the drug industry97. Both the importer and the pharmacist earn a profit margin on most medicines, which means that they can earn more by selling more of the expensive brand drugs instead of generics. The Financial Structure of the Health Sector In Curaao, there is a structural deficit in financing healthcare costs, partly because the premium income is not enough to cover all costs. One of the problems involved is the insurance package for the unemployed, which covers a wide range of care without any limit, while the insured does not have to pay a premium (fully subsidized). Generally, healthcare consumers (patients) all over the world are not aware of the costs involved and do not have many incentives to lower their consumption, because most patients have medical insurance. As mentioned previously, there is also a lack of adequate and up-to-date economic health data, which makes it difficult to analyze and monitor the factors leading to high costs. The Department of Economic Affairs determines most of the tariffs for the healthcare sector. Another complication is the complexity and incoherency of the systems of tariffs handled by the two largest consumers (BZV and SVB together account for approximately 84 percent of the total healthcare costs) of health care. For example, BZV and SVB apply different tariffs for exactly the same treatment. Policy Measures and Healthcare Developments in Curaao As described earlier, at this moment the Island Territory of Curaao still lacks a clear and coherent healthcare policy, but different measures are being undertaken, while others are planned, in order to optimize health care and control for example the healthcare costs or to improve the quality of health care, such as: Cost/Tariff Model At the governments request, the advisory company Tragpi has developed new, transparent and fair cost/tariff models for medical practitioners. The plan was completed in May of 2010 and presented to the Island Council of Curaao to be
96 97

Source: Integraal zorgbeleid: basisconcepten Drug costs account for approximately 20 percent of the total costs

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decided on. The intention is to introduce the new tariffs by January of 2011. A good cost model allocates costs to the right patient and clearly shows the links between costs, resources, procedures and patient groups, making it easy to analyze relevant costs. Cost models are also a tool that support investment decisions and allow you to forecast the effects of certain changes. The Development and Maintenance of an Economic Health Model The development and maintenance of an economic health model, like a Financial Overview of Health Care, to support policy development and evaluate current policies with up-to-date and relevant figures; such a model also makes it possible to compare figures for Curaao with those for other countries (if the International Classification of Health Accounts (ICHA) is used). According to the CBS, the last available FOG dates from the year 2006. Medical Tourism The Government of Curaao identified Medical Tourism as a way to capitalize on the healthcare sector. Medical Tourism can generate revenues from and for the healthcare sector. In 2009, the Medical and Care Tourism committee completed, on behalf of the Government, their recommendations for the successful development of medical and care tourism and the associated conditions in Curaao. Medical tourism can offer many advantages, such as additional external funds (revenues) which could lessen the pressure on the healthcare system, lower tariffs through economies of scale, upgrading of local knowledge and quality and spin-off effects for the economy of Curaao as a whole. The Government should act as a facilitator for the successful development of the medical-tourism sector. For example, it should ensure clarity of information on all legal conditions. Construction of the New Hospital The organizational preparations for the construction of a new hospital and the corresponding medical-specialized integrated business (Medisch-Specialistisch Geintegreerd Bedrijf): That will, among other things, generate more cooperation and eliminate the costs of the so-called ofisinas. In December of 2009, a foundation named Fundashon Hospital Nobo (FHN) was established to pull the project for the construction of a new hospital. In June 2010, the Island Council of Curaao approved FHNs plan for the construction of a new hospital with 370 beds at Groot Piscadera. The current design of the hospital in Deventer (the Netherlands) serves as the starting point, and the total investment for the project amounts to NAf. 430 million. After the approval, the FHN continued with its further design.

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Merger of BZV and SVB The planned merger or integration of the Health Cost Bureau (BZV) and the Social Insurance Bank (SVB): This merger will result in economies of scale and cost reductions through better efficiency and coherency in tariffs. General Health Insurance Preparation for the introduction of general health insurance (AZV) for every citizen: This should lead to standardization of tariffs and a general insurance package with new care contracts. The BZV believes that cost reductions are only possible if the new health insurance includes incentives to control demand through the introduction of personal liability, and to control the quality of supply by introducing the payfor-performance principle. Providers under the pay-for-performance arrangement are rewarded for meeting pre-established targets for delivery of healthcare services. This is a fundamental change from the current fee for service paid. Council for Public Health The establishment of the Council for Public Health in 2005: The board gives solicited or unsolicited advice on important matters relating to public health. At the same time, the Board will be informed of major proposed changes in public health policy. In April of 2010, the Island Council of Curaao established the Gemengde Ambtelijke Commissie Raad voor de Volksgezondheid committee. This committee will present a proposal on the new organization of the Council for Public Health after Curaao becomes an autonomous country within the Dutch Kingdom. Establishment Policy for Medical Practices A policy for the establishment of medical practices and healthcare facilities: An establishment policy makes it possible to manage the needed quantity and quality of such healthcare providers. A systematic and planned control of healthcare supply can only be ensured by means of legislative measures. The Government has several motives for regulating the establishment of medical practices, such as being able to provide minimum and comparable-quality requirements, achieving good geographical distribution, achieving a balanced supply of different kinds of facilities and gaining control over healthcare spending. The implementation of the Santu Remedi report (with regulations on the number and quality of medical practices) and the introduction of the Landsverordening Zorginstellingen (National Ordinance on Healthcare Institutions) are already underway.

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Prevention Policy Prevention policies: For example, overweight-prevention programs, the promotion of healthy lifestyles and the HIV/AIDS prevention talk red campaign. Good prevention programs avoid future costs. Introduction of the Electronic File The introduction of an electronic client file: The main advantages of electronic client files are easier and better exchange of information between medical professionals (efficiency) and the possibility of using the file as a source of input for further research. Introduction of a Fixed Prescription Fee System Measures for drug-cost reduction: One such measure is that, in 2010, the BZV will introduce a fixed prescription fee (Receptregelvergoeding RVV). This system implies that pharmacies will be paid a fixed fee or tariff for the work they do in giving medication to patients instead of a margin above their purchase price. In this way, the pharmacist has no financial interest in delivering expensive drugs and has therefore a more independent position in the choice of drug. This system should help reduce drug costs. The introduction of this new compensation system will lead to a shift in pharmacies revenues and the costs incurred by insurance companies. Initially, the government used the SVBs data to calculate the fixed tariff. The pharmacies argued that these data were not representative of the total spending on medications in Curaao. The Association of Pharmacy Owners (VAE) feared a heavy decline in pharmacy revenues. That is why the association approached the Dutch foundation for Pharmaceutical Ratios (SFK) to investigate the effects of the new compensation system based on accurate and complete data. The research confirmed their fear of declining revenues. The tariff based only on the SVBs data leads to a decline in overall pharmacy revenues by 32 percent. The Government and pharmacies are now again in discussion about the tariffs. The receptregelvergoeding system is used in many other countries, including the Netherlands. In the Netherlands, the average regular tariff for the delivery of a prescription drug was set at 7.91 for 2010, against 7.28 in 2009. Over the years, a few adjustments were applied, such as the difference between night, weekend and day tariffs.

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CHAPTER 3 The Crossroad to an Autonomous Country within the Dutch Kingdom

10-10-10 As of October, 10, 2010, the Netherlands Antilles, a group of five Caribbean islandsCuraao, Bonaire, St. Maarten, Saba and St. Eustatiuswhich now make up a single country within the Kingdom of the Netherlands, will cease to exist as a country. In this respect, Curaao and St. Maarten will attain a country status similar to that of Aruba within the Kingdom of the Netherlands, while Bonaire, Saba and St. Eustatius (BES islands) will become public entities of the Netherlands (equivalent to Dutch municipalities). At present, the Kingdom of the Netherlands consists of three countries: the Netherlands, the Netherlands Antilles and, since it ceased being part of the Netherlands Antilles98, Aruba. This constitutional change comes as a result of the referendum99 held on Curaao on April 8, 2005, in which citizens of Curaao expressed themselves in favor of an autonomous position for the island within the Dutch Kingdom. This implies that, as of October, 10 th 2010, the Kingdom of the Netherlands will consist of the Netherlands (including the BES-islands), Aruba, Curaao and St. Maarten. In this respect, the main effects of Curaaos new constitutional status will be expound as they relate to the sustainable economic development of the new country of Curaao. Social Economic Initiative Within the process leading to the new constitutional status for Curaao, the government unfolded several initiatives aimed at achieving sustainable growth for the new country. In line with these, the local government and that of the Netherlands agreed to develop a social economic initiative (SEI) geared at implementing a structural approach to the present social economic backlogs, in order to achieve sustainable improvements in the social-economic perspectives of the community of Curaao. The SEI facilitated the implementation of policy measures to, i.a:

Aruba seceded from the Netherlands Antilles and officially became a country in the Kingdom of the Netherlands on January 1, 1986. 99 Please note that on the other islands (Bonaire, St. Maarten and Saba) referendums on self-determination were held between 2000 and 2004

98

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reform the economy by strengthening the economic structure and developing a long-term economic strategy; reorganize government finances.

Reforming the Economy Long-Term Economic Strategy At the crossroad of the islands new autonomous status, the Island Council of Curaao had to choose this new countrys economic destiny, with the objective of achieving sustainable economic growth for the community. In light of this, the following economic vision was agreed. By 2025, Curaao will achieve an economy of wealth creators that creates and delivers high-value on a continuous basis; is recognized as an important hub in the global value chains; acts as a multifaceted Portal facilitating international trade; and that, as a result, Curaao will be able to sustain a high quality of life and collective well-being for its citizens. This economic vision aims at achieving sustainable development by undertaking major reforms to turn around the present economy. The main concept of the economic vision is directed at the concepts: - high value-added economy; - international trade position; - sustainable high quality of life and collective wellbeing. Strengthening the Economic Structure In addition to the formulation of a long-term economic strategy in line with the economic vision and strengthening the economic structure by improving the investment climate, the Government of Curaao has been committed to implementing effective policy measures for 20092010, which underpin a structural improvement of the investment climate in order to attract investments that produce growth on a sustained basis. The proposed policy measures resulting from both the Social Economic Initiative and the policy agenda 20092010 are directed toward the following five fields: - Reduction of unnecessary regulation and administrative charges The objective is to reduce red tape for entrepreneurs by simplifying and streamlining procedures to obtain business permits, which is a prerequisite to attract more investments and boost employment.

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- Streamlining and centralizing investment promotion The aim is to make the Curaao Economic Development Board (CEDB) operational. The CEDB is meant to facilitate the new country of Curaaos economic development through investment promotion and acquisition of both local and foreign investments. - Formulation of a competition policy The intention is to stimulate competition through an effective competition policy, which is also a valid prerequisite to strengthening the economic structure. The policy is directed at promoting an effective free-market system by fostering fair competition through supervision in general terms, by a competition authority which acts on the principles of ex-post and supervision of specific market segments by institutionalizing a regulatory authority when dealing with natural monopolists. The regulatory authority acts through ex-ante measures until a certain level of competition has been reached. Both measures have a positive effect on the cost of doing business and, logically, also on the investment climate. Both measures will help to restrain inflationary pressure. - Implementation of the labor market policy The objective is to enhance labor-force participation and labor supply to meet the demand. - Promoting entrepreneurship and improving the capital market The policy intention is to strengthen SMEs by stimulating entrepreneurship, creativity, innovation and availability of financing to better meet the challenges of the current competitive trade markets. The SME sector is confronted with different barriers, including lack of accessibility to the capital market, which is being disturbed by structural budget deficits in the public sector. It is expected that the accessibility to the capital market will improve without further specific SEI measures due to greater availability of funds as a result of the debt relief in the public sector (see also the section on Debt Repayment). Additionally, it is expected that, also as a result of the debt relief, finances for private-sector investments will be available on more competitive conditions. Less government borrowing on the financial market will exercise a downward pressure on domestic interest rates. - A competitive tax policy The tax system needs to be simplified. The introduction of a new fiscal policy aims to increase compliance and contributes to a better investment climate on Curaao. The Government has approved the implementation of an integrated Tax Department (Nieuwe Belasting Dienst) which offers the opportunity to improve both the tax policy and the tax administration. As regards the tax policy, the aim is to achieve a proper balance between indirect and direct taxes by lowering corporate and income taxes and slightly increasing the turnover tax.

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The operational aspects which drive the New Tax Department towards operational efficiency include: a. Simplifying tax forms, processes and procedures; b. Shortening the response time on questions and requests from taxpayers; c. Introducing electronic filing of tax declarations; d. Applying more specialist-specific training tools at the Inspectorate of Taxes; e. Introducing a management-information system to facilitate performance evaluations. Government Finance and Government Organization In addition to reforming the economic structure, the SEI also provided the opportunity to both improve government finances and design an effective and efficient structure for the public organization. - Improve government finances The policy measures to improve government finances are aimed at: a. improving the preparation of the long-term government budget b. introducing both a new code on corporate governance and a state subsidy policy c. improving the collection of taxes and other revenues. - Integrate the two layers of government The present double-layered government presents an obstacle to the decision-making process for policies and projects (unnecessary procedures and bureaucracy), which is very counterproductive. A single level of government will lead to less government bureaucracy and a lower administrative burden, which will contribute to the sustainable economic development. The policy measures are directed to: a. develop competence The government apparatus must be adequately staffed so that the supervision of the apparatus can be steered towards output, which is a basic principle to an effective and payable government apparatus. improve basic administration Improving a number of indispensable basic administrations and putting them into operation is a precondition to: increasing effectiveness of policies by improved information; improving service through univocal registration and establishing basic data;

b.

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 Monetary Affairs

reducing costs; reducing fraudulent practices and; increasing the quality of statistical information.

The new constitutional status also exposes Curaao to challenges in the area of monetary policy. In the new constitutional structure, Curaao and St. Maarten will form one monetary union. A monetary union requires a high degree of policy coordination and harmonization to ensure a balanced and effective monetary policy. In this respect, besides the free movement of services, goods, labor and capital between, in this case, the countries of Curaao and St. Maarten, the monetary union also requires strong political commitment. Debt Repayment The new constitutional structure also provides a good financial starting position for the new country of Curaao. In this framework, the Netherlands started to relieve Curaaos debts up to a level in line with the interest-burden norm (rentelastnorm). This implies, i.a.: - that the governments interest burden (of loans) may not exceed 5 percent of the average revenues in the three previous years. - that debts up to December 31, 2005 will be paid (including loans to refinance the debt position up to December 31, 2005 and those to refinance interest charges of the debt position up to December of 2005). The conditions emanating from the debt relief are: - financial supervision by a supervisory authority; - balanced current budget; - interest burden may not exceed 5 percent of the average revenues of the three previous years; - improved financial management and control (Curaao must establish a reliable balanced budget and a balanced long-term perspective on the basis of the 5percent interest-burden norm). The consequences of the stipulated conditions attached to the debt relief program will lead to, among others things: - a substantial inflow of liquidity which will exert a downward pressure on interest rates, resulting in availability of funds (at competitive interest rates for the private sector);

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lower interest rates, exerting an upward pressure on domestic consumption and investments, which will have a significant positive effect on economic growth.

Conclusion At the crossroad of a new constitutional status for Curaao, the opportunity has presented itself to address the most primary financial, economic and social 100 issues in a more island-specific context. This resulted in the implementation of fundamental policy measures to guarantee a sound starting position for the new country of Curaao at the onset of its new constitutional situation. Source: - Sociaal Economisch Initiatief Curaao; Bouwen aan een zekere toekomst, March, 2008 - Netherlands Antilles fiscal commission removing obstacles to growth and restoring jobs in Curaao; issues, strategic agenda, and implementation, June, 2007 - Uiteenzetting voor- en nadelen van de opties voor de centrale bank voor de nieuwe landen in het Koninkrijk, July, 2006

100

Please note that in this release only the economic and financial consequences were treated.

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APPENDICES :
APPENDIX I: METHODOLOGY The different sections were assigned to policy advisors at the Department of Economic Affairs based on their expertise on particular economic sectors or topics. The articles are based on: Information provided by agencies such as the Central Bureau of Statistics, the Central Bank of the Netherlands Antilles, the Chamber of Commerce, the Curaao Tourist Board, etc. Information provided by other government departments Interviews, discussions and surveys among stakeholders Information provided by international organizations such as the ECLAC, the IMF, the OECD, the UN, the World bank etc. Combining this information with their own knowledge, the authors formulated their analysis of specific economic sectors or topics as neutrally and objectively as possible. Information gained through interviews with stakeholders was used with caution, keeping in mind the potential subjectivity of the stakeholders. The draft articles were discussed with the stakeholders to avoid any possible misinterpretation of the information provided. The quantitative macroeconomic calculations and projections in the Economic Outlook for 2010 were carried out with the aid of Curalyse, a macroeconomic model for Curaao. The Curalyse model consists of two parts: a dataset with the national accounts (Government, households, businesses and rest of the world), monetary figures, labor market figures, balance of payments and behavioral and exogenous variables (such as international inflation and government policy measures). The Curalyse model can be used to analyze past economic performance, make projections of selected variables and calculate the effect of policy measures by the government as well as actions by labor organizations or the business community. Another model used for this publication was Turistika. The Turistika model is designed especially for the tourism sector and can be used to calculate the tourist industrys impact on various economic variables.

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APPENDIX II: LIST OF TABLES & FIGURES

Chapter 1 Table 1.1. Key economic indicators Table 1.2. Baseline scenario Table 1.3. Optimistic scenario Table 1.4. Pessimistic scenario Table 1.5. Labor market indicators 2005-2009 Table 1.6. Financial report of the Island Government of Curaao for 2009 Table 1.7. Balance of payments of the Netherlands Antilles Figure 1.1. Selected unemployment rates Figure 1.2. Interest rate development

Chapter 2 Table 2.1. Investments in agriculture, livestock and fisheries Table 2.2. Factors that influenced the financial result for 2009 Table 2.3. Utilities in 2008 and 2009 Table 2.4. Building permits statistics Table 2.5. Index figures raw materials Table 2.6. Recent total visitors e-zone Koningsplein Table 2.7. Countries of origin of the visitors Table 2.8. The established service e-zones Table 2.9. Aircraft traffic at Hato airport Table 2.10. Air freight by weight Table 2.11. Air freight Table 2.12. Freight cargo Table 2.13. Arrival development in main markets Table 2.14. Overview key financial figures 2009/2008 Table 2.15. Specification of accounts Table 2.16. Overview insurance companies in Curaao Table 2.17. OECD country comparisons of some health statistics Table 2.18. Curacao: medical costs of cure BZV Table 2.19. Curacao: total medical costs of Social Insurance Bank Figure 2.1. International crude-oil price development Figure 2.2. Export destinations in percentages per country Figure 2.3. Fuel-oil sales Figure 2.4. Sales of jet fuel in 2008 and 2009

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Figure 2.5. Amount of companies in different sectors Figure 2.6. Share of wholesale and retail in Curaaos GDP Figure 2.7. Actual passenger traffic at Hato airport Figure 2.8. General aviation & commercial flights developments Figure 2.9. Number of calls by ship type Figure 2.10. Cruise tourism Figure 2.11. Average Hotel Occupancy Rate

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APPENDIX III: LIST OF ABBREVIATIONS

AFTK AIA ASEAN ASK AZV BES BNA BOO BOP BRIC BTP BZV CADIV CAFTA CAH CAI CAP CARILEC CBS CDM CEDB CHATA CIFA CIS CPA CPS CTB CTO Curinde Curiol DAE DCSX DEZ DMO

Available Freight Tonne Kilometrs America Institute of Architects Association of Southeast Asian Nations Available Seat Kilometers General health insurance plan Bonaire, St. Eustatius and Saba Central Bank of the Netherlands Antilles Build, Own and Operate Balance of Payments Brazil, Russia, India and China Bureau for Telecommunications and Post Foundation Bureau medical expenses services Commission for the Administration of Currency Exchange, Venezuela China-ASEAN Free Trade Agreement Curaao Airport Holding N.V. Curaao Airport Investments N.V. Curaao Aiport Partners Caribbean Electric Utility Service Corporation Central Bureau of Statistics Curaao Dry Dock

Curaao Economic Development Board Curaao Hospitality and Tourism Association

Curaao International Financial Services Association Commonwealth of Independent States Curaao Port Authorities Curacao Port Services Curaao Tourist Board Caribbean Tourism Organization Curaao Industrial & International Trade Development Co. N.V Curaao Oil N.V. Dutch Antillean Express Dutch Caribbean Stock Exchange Department of Economic Affairs, Curaao Down Town Management, Curaao

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EIA EPZ EZ FATF FHN FOG FRICH FTA FTK GDP IATA ICHA IDB ILO IMF ISLA ISO KTK LAC LVV MENA MOT MW NAF OBNA OECD OPEC PdVSA PPA RdK RPK SEI SFK SMEs SOLTUNA

Energy Information Administration Export Processing Zone Economic Zone Financial Action Task Force Foundation for the construction of the new hospital Financial Overview Healthcare Food Retail Industry Challenge Fund Free Trade Area Freight Tonne Kilometers Gross Domestic Product International Air Transport Organization International Classification of Health Accounts International Development Bank International Labor Organization International Monetary Fund Curaao Refinery Company International Organization for Standardization Curaao Tugboat Company Latin America and the Caribbean Department of Agriculture, Livestock Breeding and Fisheries Middle East and North Africa Unusual Transactions Reporting Center Mega watt Netherlands Antilles Guilders Development Bank of the Netherlands Antilles Organization for Economic Co-operation and Development Organization of Petroleum Exporting Countries Petroleos de Venezuela Power Purchase Agreement Curaao Refinery Revenue Passenger Kilometers Social Economic Initiative Curaao Dutch foundation for Pharmaceutical Ratios Small and medium-sized enterprises Agriculture Research Foundation

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