The Export of Services

Before we ask why the export of services is important, we should take a look at what the export of services encompasses. It is basically the trade of services and goods with other countries; any type of service or good that is being sold to a non-resident.

Text Heather de Paulo and Dennis Dare, Curaçao Chamber of Commerce Senior Economist

According to the International Standard Industrial Classification, the following categories are all defined as services: trade, hotels and restaurants, transport, storage and communication, financial, insurance, real estate and business services, as well as community, social and personal services. Export services that have a significant impact on Curaçao’s economy include oil refining, tourism and financial services. Shipping, international trade, and other activities related to the port of Willemstad (like the Free trade zone) also have a significant impact. A major share of the economic activity on Curaçao, approximately 82%, is comprised of services, which is equivalent to almost 4.5 billion ANG.

A major share of the economic activity on Curaçao, approximately 82%, is comprised of services

Looking back at Curaçao’s economic and export history, the first profitable industry was salt mining from the saline-rich ponds located in the eastern part of the island. Salt was a lucrative export at that time and became one of the major factors responsible for bringing the island into international commerce. Curaçao’s geography, which at first was considered to be an obstacle economically, later proved to be invaluable due to its ideal location for trade and commerce. Once this was realized, shipping and trading operations that were centered around the port of Willemstad played an important role in the development of the economy. With the discovery of oil in the region in the 1920’s, Curaçao’s natural harbor allowed oil tankers to enter, lending way for the transshipment of oil products. This brought affluence to the island and, consequently, a mass influx of immigration with a subsequent boost to the economy.

When we think of the import/export industry on Curaçao, it would seem the import industry is more significant, and it is. However, Curaçao exports many services and some goods. There are some products or goods that originate here or are imported, manufactured in some way and re-distributed internationally. Some examples are the Curaçao of Curaçao liquor and the Free Zone. The export of goods, however, does not compare with the revenue generated by the export of the services. Some examples of exported services include the oil refinery where the final product is exported elsewhere, the dry-dock, which repairs international ships and the tourists who come to the island, rent a room and maybe a rent car using foreign currency. Currently, there is a rising trend in companies that are established on the island, but provide services elsewhere. They are considered exporters of their services.

The volume of merchandise exports generated by the manufacturing sector did not grow as much as hoped. One reason for this may be because of the comparative disadvantage of that sector within the economy in comparison to our services. The export of services is, therefore, very important and has a significant impact on the economy of the island. It is actually the largest generator of revenue for Curaçao’s economy. According to John Jacobs, executive director of the Curaçao Chamber of Commerce, tourism is at least 25% of the economy and the dry dock is around 6 % to 8%. The international financial sector consists of around 8% and transportation and logistics around 6% to 8% of the economy. It could be said that, together with local trade and government, the export of services is the economy of Curaçao.

It could be said that, together with local trade and government, the export of services is the economy of Curaçao.

Successful countries where export is a major player in their economy have complementary infrastructure and resources in place, such as a large pool of human capital, well-equipped and trained human resources, stupendous educational system and high savings ratio, to name a few. However, the focus on investments and, in particular, exports certainly made these countries more competitive in the long run. The key is to create a balance between the expense of import with the income of export.

Jacobs revealed that the latest trend we are seeing right now on Curaçao is local professionals who are increasingly providing consultancy services throughout the region. Companies and organizations in the international market are having the same issues that are seen on Curaçao. Curaçao’s professionals have the expertise and networking to deal with those issues, so they are reaching out into the international market to sell their services and expand. This is not only a trend, but also something the Curaçao Chamber of Commerce promotes, encouraging continued export of these services.

Worldwide, small and medium enterprises (SME’s) have made up a major part of the services sector. Further strengthening and stimulating growth of the services sector can be a major factor in providing an increasing number of job opportunities and simultaneously alleviating poverty on the island. Due to lower costs, smaller enterprises prefer to offer their services offshore. Small firms are potentially in a better position to target a niche service market and become successful when offering a top quality, value-added service tailored to the demands of larger firms abroad and/or foreign-owned companies in the domestic market. Nowadays, the whole production process is much more fragmented and can easily be separated, so SMEs can jump in an area where they have the expertise and/or are willing to invest and offer a better deal to the targeted foreign company. What are the critical success factors for growing Curaçao’s service exports? There seem to be three fundamental requisites for the services sector: well-trained and qualified human resources, an excellent quality of the telecommunications network and a sound institutional network. There are some key lessons that can be learned from other countries. If higher-end services are to be exported, human resources must be well equipped and command the necessary competencies. Research in Malaysia, Egypt and Chile, as well as Brazil, has shown that the lack of skilled human capital was a key factor in why the export of services in those countries were unsuccessful and/or has confronted problems. Also, in Chile, the lack of English language proficiency and the high-cost of broadband internet access are constraints for the further development of its commercial services.

With respect to the institutional network, in particular customs and border management, business environment, intellectual property rights and contract enforcement, Curaçao seems to have a competitive edge in the last two factors, as our Dutch judicial system is well-developed and trustworthy. Commercial and business services would certainly be able to build on this respected institutional framework, which stands out when compared to the Latin American and the Caribbean region. The existence of credible and independent regulators is also seen as vital in the eyes of foreign consumers. In this context, a low level of corruption, simple and easy export procedures, as well as a flexible employment law, are further elements that must be in place to have a competitive services sector.

The Chamber recognizes that despite economic challenges the island has experienced during the past decades, it was in particular our services sector that played an important cushioning role for our economy and brought the much needed diversity to offset various disturbing events worldwide. However, in 2011, foreign exchange reserves dropped significantly. If Dutch capital inflow comes to a halt in the near future this could worsen the balance of payments endangering our imports and the stability of our currency. Policy and decision makers would therefore do well to seriously focus on encouraging the growth of the exporting services community, as this sector certainly has the ability to offer Curaçao the necessary boost towards sustainable economic growth, permanent jobs and foreign currency. The export of services is what brings foreign currency to the island. Jacobs stated that right now, Curaçao has a foreign currency reserve right of around four months, which is above the international norm of around three months.

According to Jacobs, Curaçao faced a blow to its economy in the 1980’s and 1990’s. Shell left the island in 1983 and the Venezuelan Bolívar dropped by 50%. Punda was abandoned and ruined. Some of the stores that exist in Punda today opened during this period. They were the only ones in Punda at that time and they kept it alive. “We have had many programs of revitalization over the years that have resulted in the progress we’ve seen in the last 8 years, “ Jacobs said. “The quality Curaçao had in its heyday is coming back.” It should be realized that without business and professional services, economic development would almost be non-existent.

It should be realized that without business and professional services, economic development would almost be non-existent.

Today, Curaçao has one of the highest standards of living in the Caribbean, ranking 46th in the world in terms of GDP per capita and 28th in the world in terms of nominal GDP per capita. The island has a well-developed infrastructure centered around exported services such as oil refining, tourism, financial services and activities related to the airport and seaport. Compared with the export of goods, excluding oil products and free zone transshipment, Curaçao’s export volume of services has been and still is a substantial foreign exchange earner, generating on average eight times as much foreign currency as merchandise exports. It is without a doubt that services has been and always will be vital to Curaçao’s economy. To achieve the government’s aim to make its economy more diverse, efforts continue to be made to attract more foreign investment.