Economy and Trade
The former British colonies of St Kitts (also known as St Christopher) and Nevis have been in an uneasy federation since gaining independence in 1983. Some politicians in Nevis accuse the federal government in St Kitts—home to the majority of the population—of ignoring the needs of Nevisians. The two Caribbean islands, which lie around 150 miles to the east of Puerto Rico, are now reliant on tourism, offshore finance, and service industries. The loss-making sugar industry was wound down in 2005, with the loss of hundreds of jobs. The island’s agricultural system is focused on rice, yams, bananas, cotton, peanuts, and vegetables. There is also a small fishing industry.
St Kitts and Nevis is a member of the Eastern Caribbean Currency Union (ECCU). The Eastern Caribbean Central Bank (ECCB) issues the Eastern Caribbean dollar (EC$) for all members of the ECCU. The ECCB also manages monetary policy, and regulates and supervises commercial banking activities in its member countries. The ECCB has kept the currency pegged at EC$2.7 to US$1.
Economic Policy over 12 Months
St Kitts and Nevis has a small and highly open economy. The economy enjoyed strong growth during much of the 1990s, but hurricanes in 1998 and 1999 and the September 11, 2001 terrorist attacks in the United States hurt the tourism-dependent country. Economic growth picked up in 2004, with a real GDP growth rate of 6.4%, followed by 4.1% growth in 2005. Economic growth accelerated to 5.8% in 2006, mostly as a result of diversification into tourism, and construction related to the Cricket World Cup. Growth is estimated to have slowed slightly in 2007, to 3.1%, as construction demand slowed following a spike in 2006.
In January 2009, the International Monetary Fund (IMF) reported on the findings of a mission to St Kitts earlier in the month. The IMF praised the government’s economic management, saying that the country had enjoyed four consecutive years of sizeable primary surpluses between 2005 and 2008. However, it added that, while public debt as a proportion of GDP had declined by 20 percentage points since 2005, it remained “formidably” high, at more than 170% of GDP at the end of 2008.
Tourism has shown strong growth over the past decade, and is now a major foreign-exchange earner. There were 117,300 stopover arrivals on the two islands in 2007, nearly two-thirds of which were tourists from the United States, a quarter from the rest of the Caribbean, and around 5% from Canada. There were also more than 251,000 cruise-ship passenger arrivals in 2007, well above levels in the two previous years. The government has helped to develop the industry by adopting a program of investment incentives for hoteliers who locate to the islands, including liberal tax holidays, duty-free importation of equipment and materials, and subsidies for training provided to local personnel.
In 2006, the government decided to reposition the island as a high-quality destination experience for sophisticated customers with good spending power. A new development featuring five-star hotels, luxurious restaurants, and shops is due to be finished on St Kitts in 2011. Several other development projects are underway on the islands, which should boost tourism income significantly when the global economy recovers.
In 2008, the government continued its efforts to regulate the banking sector, passing a Proceeds of Crime Act that made money laundering an extraditable offence. The islands have developed a strong offshore-banking infrastructure, particularly since St Kitts and Nevis was removed from the Organization for Economic Cooperation and Development’s Financial Action Task Force (FATF) list of non-cooperative countries and territories in 2002.
Economic Performance over 12 Months
The islands’ dependence on tourism and, in particular, on arrivals from the recession-hit US market affected the economy badly in 2008 and 2009. In March 2009, the Minister of State for Tourism, Richard Skerritt, said that hotel occupancy and revenue had declined by between 30% and 40%, compared with early 2008. The industry has also been affected by the crisis in the global aviation industry, with airlines that serve the islands cutting back on their operations. In March 2009, Windward Islands Airways International said it was considering ending its flights to St Kitts and Nevis. More positively in 2009, British Airways launched weekly direct flights to St Kitts from London. Skerritt has pointed out that St Kitts and Nevis is faring better than several of its Caribbean neighbors, which have been reporting significant job lay-offs, as well as a slowdown in foreign direct investment.
The global financial crisis has had a direct impact on the islands. In March 2009, a local newspaper reported that several of the larger institutions in the Federation have substantial investments in the struggling Trinidad-based Colonial Life Insurance Company (CLICO), and collectively could lose US$300 million. It said those at risk included high-profile financial institutions, private companies, and local investors, as well the savings, investments, and pensions of ordinary citizens. The authorities in Trinidad and Tobago have admitted that the financial problems facing CLICO are far worse than first anticipated, even though the Trinidadian government has agreed to plough billions of dollars into the company.
Hurricane Omar, which passed through the islands in October 2008, has also disrupted tourism, forcing the closure of one of the island’s larger hotels, the Four Seasons Resort, until October 2009. The hotel laid off 620 employees in March 2009.
Increasing crime could pose a threat to tourism. In the first two months of 2009, seven people were murdered in the 68-square-mile country. St Kitts and Nevis, like several other Caribbean islands, has seen a spike in gang violence in recent years. To date, there have been no attacks on foreign tourists.
Support for Inward Investment and Imports
The government of St Kitts is keen to encourage investment, and offers a number of incentive packages to investors. These include tax holidays, export allowances, exemption from import duties, and various packages aimed at encouraging the development of hotels.
With one exception, foreign investment in St Kitts and Nevis is not subject to any restrictions, and foreign investors receive national treatment. The only restriction is the requirement to obtain an Alien Landholders License for foreign investors seeking to purchase property for residential or commercial purposes. For more information on investing in St Kitts, see the website of the St Kitts Investment Promotion Agency.
In May 2008, the Nevis Investment Promotion Agency (NIPA) was launched as a one-stop agency to promote the island, but it does not yet appear to have a website.
For information on importing into St Kitts and Nevis, see the World Trade Organization Trade Policy Review 2007 for the islands.
There is no personal income tax in St Kitts. Qualified companies enjoy full exemption from taxes on corporate profits for up to 15 years. Corporate tax is levied at the rate of 35% of net profits. This tax does not apply to exempt companies, or to enterprises that have been granted a tax concession.
GDP growth: 3.5% (2008, est.)
GDP per capita: US$20,000 (2008, est.)
CPI: 4.5% (2007, est.)
Key interest rate: 6.5% (December 31, 2007)
Exchange rate versus dollar: East Caribbean dollar per US dollar—2.7 (2007)
Unemployment: 4.5% (1997)
Current-account deficit/surplus −US$163 million (2007, est.)
Population: 39,817 (July 2008, est.)
Source: CIA World Factbook except where stated