Can Caribbean markets reduce their exposure to the external environment?

April 17, 2018 – This post was written by Boyang Xue, FSG’s Research Intern for Latin America

Despite rising tourism and lower global energy prices, due to a heavy reliance on energy imports and fragile electricity grids, the Caribbean economies are still characterized by their vulnerability toward external economic conditions and a lack of resilience toward climate change.

However, many countries in the Caribbean are trying to come to grips with the challenges of energy independence and extreme weather resilience, and their initiatives have been backed up by finance and goodwill from multinational financial institutions, private companies, and foreign governments. Here we take a quick look at some of these developments, and how they could impact multinationals operating in the region:

  • NAFTA countries have reached out to support the Caribbean’s quest for energy independence: In an effort led by the United States to erode Venezuela’s influence in the Caribbean, the United States, Canada, and Mexico are seeking oil-related cooperation with Caribbean countries, signing non-binding agreements for technical assistance, providing oil supplies, and potentially investment in the oil and gas industry
  • Some countries in the region have begun to explore their untapped oil & gas fields, both onshore and offshore: ExxonMobil is already developing oil reserves found off the coast of Guyana, and British Petroleum has discovered major gas fields near the cost of Trinidad and Tobago that total two-trillion cubic feet of gas. At the same time, oil and gas reserves found by recent seismic studies in the Dominican Republic, Jamaica, and the Bahamas have drawn interest from international oil giants
  • The Caribbean markets are increasingly turning to renewable sources of energy: With increasing exposure and vulnerability to extreme weather conditions, other hurricane-hit SIDS have turned to solar, power storage, and microgrid to boost their energy self-sufficiency. East Caribbean islands have taken steps to further explore their enormous yet underutilized geothermal potential, with member countries of the Caribbean Community(CARICOM) setting a goal of reaching 47% renewable energy by year 2027
  • Investments and finance from both the private sector and multilateral organizations are flowing into the region to support a broader energy independence agenda: Tesla has been helping Puerto Rico with solar power generation and storage; Richard Branson, the founder of the Virgin Group conglomerate is setting up a fund to finance projects to replace conventional fossil fuel-based power grids with renewable energy systems in the Caribbean; Jamaica Public Service Company Ltd (JPS), the majority owned by Marubeni Corporation and Korea East-West Power, has incorporated 160MW of renewable generation capacity to Jamaica’s power grid, and is moving closer to its goal of reaching 30% energy consumption from renewables by 2030.

Meanwhile, the World Bank has recently provided US$ 17 million for a geothermal plant in Dominica, while the UN Development Program (UNDP) launched a US$ 8 Billion fund called the Caribbean Climate-Smart Coalition with the support of the Caribbean Development Bank, the Inter-American Development Bank, and private companies to support public-private-partnership and transform the region’s energy system to be more sustainable and resilient.

The unprecedented, concerted efforts by governments, the private sector, and multilateral institutions to transform the Caribbean’s energy sector through exploring the region’s oil & gas potential while embracing renewable energy productions should generate ample business opportunities for multinationals.

In the short term, B2G companies are likely to see resurged government backed opportunities for investment in conventional oil and gas production and renewable energy production. At the same time, B2B companies can expect rising investment in these areas to drive higher demand for heavy equipment, (such as generators and construction vehicles), IT equipment and services, and other professional services. These investments, in turn, will permit job growth and rising wages, thus creating expanded opportunities locally for B2C companies.

In  the medium-term, a more resilient power grid and reduced reliance on fossil fuel imports will provide a more stable growth model for the region, reduce energy costs for consumers and businesses, while easing precarious fiscal deficits, thus driving a more conducive and predictable operating environment for multinationals.

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