CURACAO (WILLEMSTAD) - Over the past two decades, the economic performance of Curaçao has been poor characterized by an average real GDP contraction of 1.1% per year between 2001 and 2019 and a high unemployment rate of 19.1% in 2019.
Oftentimes, it is suggested that a stronger relationship with the European Union (EU) may improve Curaçao’s economic performance and social conditions. “An analysis of the economic performance of a selection of European overseas territories, including Curaçao, suggests that stronger ties with the EU does not guarantee a better economic performance if economic weaknesses are not addressed accordingly”, as highlighted by the Executive Director of the Centrale Bank van Curaçao en Sint Maarten (CBCS), dr. Jose Jardim, during his presentation at the Europe Direct Curaçao seminar that was held on November 4, 2021.
The EU currently includes 22 overseas territories linked to five member states (France, The Netherlands, Denmark, Spain, and Portugal) which, for historical, geographical, or political reasons, enjoy special status within or outside the EU.
Nine of these territories are classified as Outermost Regions (ORs) and 13 form the group of Overseas Countries and Territories (OCTs). Curaçao and Sint Maarten belong to the group of OCTs. The ORs are territories forming an integral part of a member state of the EU but located at a significant distance from mainland Europe.
Meanwhile, the OCTs do not form part of the EU but cooperate with the Union through the Overseas Countries and Territories Association (OCTA) which was created to improve economic development and cooperation between the OCTs and the EU.
Dr. Jardim explained that ORs and OCTs share some common characteristics which make comparisons viable, including the small size and remoteness of the territories, a relatively high openness to trade, little economic diversification, a small export base, scarce domestic natural resources and labor supply, and a proneness to natural disasters making them susceptible to external shocks.
There are, however, also some differences between ORs and OCTs. For instance the whole legal framework of the EU – except for specific situations - is applicable in the ORs and the ORs are eligible for more financial support and subsidies from several EU funds, while OCTs only receive financial support from the EU’s European Development Fund (EDF).
To put this last difference into perspective for the period 2014 – 2020, a total of EUR 13.8 billion was allocated to the ORs while a total of EUR 364.5 million was allocated to the OCTs. During the seminar, Dr. Jardim presented an analysis of the development in several economic indicators and European funding of a selection of ORs and OCTs for the period 2000 – 2009 and 2010 – 2019, respectively.
In the analysis the ORs were used as a proxy to more integrated economies with the EU compared to OCTs. The territories included in the analysis were selected based on geographical location, data availability and overall economic structure. Not surprisingly, the average EU support per capita per year was considerably higher for the ORs than for the OCTs since the ORs are eligible to all the support and subsidies under the EU Cohesion Policy as opposed to the OCTs.
However, the EU support per capita for the group of OR territories dropped in the 2010 – 2019 period compared to 2000 – 2009, while it remained practically unchanged for the OCTs. Meanwhile, the average real GDP growth rates of the OR territories and the OCT territories seem to be similar over the two subperiods.
In both the ORs and OCTs, the average growth slowed down from 2.8% during the period 2000 – 2009 to 0.9% between 2010 and 2019. Hence, despite that on average the ORs received significantly more financial support from the EU than the OCTs, the real GDP growth was similar.
When considering the GDP per capita, on average, it was lower in the group of OR territories compared to the group of OCT territories in both time periods. The average unemployment rate increased in the group of ORs in the period 2010 – 2019 compared to 2000 – 2009, while it remained practically unchanged in the group of OCTs.
Additionally, the average unemployment rate in the group of ORs is higher than in the group of OCTs in both time periods. According to Jardim, a stronger relationship with Europe may have some benefits for Curaçao, including more inflows of foreign direct investments from Europe, increased tourism travel to Curaçao, and a higher level of social and environmental protection.
In addition, Curaçao may, through the European Cohesion Policy, become eligible to more EU support and subsidies. On the other hand, further integration into the EU may lead to loss of autonomy and a larger administrative burden for Curaçao. The course of international trade would require a clear positioning of Curacao’s strategy.
“The analysis suggests, however, that extensive financial support and subsidies from the EU do not guarantee better economic performance. Curaçao suffers from several economic and social weaknesses, particularly the structural unemployment due to a mismatch between labor demand and supply, and a large public administration sector that results in inefficiencies which are found in many OR territories as well”, Jardim explained.
“Therefore, a stronger relationship with the European Union may improve Curaçao’s social and economic performance only if the current economic weaknesses are addressed accordingly”, Jardim concluded.
The complete text and presentation of the Europe Direct Curaçao proposition paper can be viewed on the CBCS website at www.centralbank.cw under the Speeches and Presentation section.