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Moderately positive economic outlook for 2014

2014-aheadLooking back at what 2013 brought about for the Aruban economy, one may observe that the first complete year - without an oil refinery operating on the island - went reasonably well.


On the positive side, tourism performance compensated partially for the loss of the refinery, growing considerably. Logically, this was not enough to do away with all the unemployment caused by the refinery shutdown in 2012. A decrease of approximately 2% in payroll tax during the first 10 months of the year – compared to the same period during 2012 - is an indication that unemployment may still be on the high side. The opening of the Ritz Carlton hotel in late November 2013 may have brought along a positive change in unemployment figures; however, the chronic lack of reliable unemployment statistics hampers a clear view of the current situation.

The other government revenue figures, which may serve as parameters for economic growth, are on the positive side. The turnover tax (BBO) showed a little improvement of 1.2% during the abovementioned period, compared to 2012, while import duties presented a considerable increase of over 8% in that same period of time. Together with a deflation during the entire year – mostly due to a decrease in electricity and water tariffs - 2013 may go into the books with a moderate increase of real GDP.

For 2014, the upstart of various relatively large scale projects, such as the expansion of the hospital, the freeway connecting the airport and the hotel area in Oranjestad, and the construction of the “Green Corridor” (a new freeway between the airport and San Nicolas), may create the basis for increased investments and economic growth. However, one should keep in mind that these projects are boosting employment only temporarily, as no permanent economic activity, nor employment, will be created by their implementation alone.

Registration of new businesses

Data from the Trade Registry at the Chamber of Commerce & Industry for 2013 show a remarkable growth in the number of new businesses, compared to the 2012 registration. In 2013, 1324 onshore businesses were registered, while 2012 was considerably lower, at 1197, an increase of 10.6%. This increase takes us – for the first time since the 2008/2009 global crisis - to the level of more than 1300 new business registrations per year. However, it must be pointed out that this significant growth only took place within the category of small sole proprietor enterprises, growing from 675 registered companies in 2012, to 833 in 2013, an increase of 23.4%.

On the other hand, considerably less incorporated businesses, such as NVs, AVVs and VBAs, came into being. While 2012 still reached a level of 500 new incorporated companies, 2013 showed a deceptive number of 454, a drop of 9.2%. It is important to notice, however, that the VBA, the new limited liability company introduced in 2009, increased from 136 in 2012, to 168 in 2013 (23.5%). A clear sign that the VBA is gaining popularity as preferred legal person, compared to the traditional corporation, the NV, which is losing ground gradually.

KvK-registered new businesses

As to the location of the newly registered businesses, one may observe that most districts such as Noord, Eastern Oranjestad, Paradera, Santa Cruz, Savaneta and Northern San Nicolas, experienced a growth in comparison to the previous year. Only Western Oranjestad and Southern San Nicolas registered less new businesses compared to the previous year. The highest percentage of growth was registered in Paradera: 29.4%. The largest decrease took place in Southern San Nicolas (-9.5%), home to the traditional downtown commercial area.

KvK-Growthperdistrict

Apparently, it is still too early to see the possible positive effects of the special fiscal regime formulated in 2013 by the government, especially with the resurgence of the San Nicolas downtown business zone in mind.

In general, the increase of new businesses in 2013 is a positive signal which may indicate that our economy maintains a certain level of resiliency, in spite of the loss of the Valero refinery. However, what remains a challenge is the fact that the oil sector does not generate the same level of hard currency anymore through exports, while Aruba’s imports of fuels remain high, and compensation should be provided by other sectors earning this currency.

Public Finance
Next to reasonable economic perspectives for 2014, the financial situation of government remains a major preoccupation, also because of the consequences this may have for our economy, among others through measures that will increase the cost of doing business. According to data provided by the Finance Department to the Social Dialogue in late 2013, government expenditure will not decrease compared to 2012, including a drastic increase of payroll expenses (from Awg. 685 million in 2012 to Awg. 723 million in 2013, an increase of 5.5%). Total expenditure is projected to reach a level of Awg. 1.437 billion, while total revenue is expected to be only Awg. 1.164 billion, leaving again a considerable gap to be covered by new loans. By the end of 2013, public debt related to GDP will stand at between 73 and 74%, which clearly takes us into the danger zone.

The introduction of a ceiling on government expenditure for 2014, of Awg.1.350 billion should be applauded, but it should also be observed that – in order to achieve this – major budget cuts should be performed in order to go from current expenditure level to the proposed ceiling. Also, other commitments like increased interest payments on bond loans and payment arrears with the public employee pension fund (APFA) may obligate government to recur to additional cuts in order to reach the ceiling.

Hopefully, confidence in our economic performance will not be affected by the financial problems government is experiencing. Public and private partners need their time and effort to work together creating a more attractive business climate, both for local as well as foreign investors.

More and more stakeholders become aware of the fact that Aruba is a terrific place to live, but a lot could be done specifically for making doing business an easier task, especially now that we are in dire need of a diversification of our economy. We need to address our fiscal regime, removing existing red tape for business establishment (licensing, banking procedures, etc.). This of course, maintaining an efficient supervision on businesses providing a level playing field for all.

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