Curaçao Economic Outlook 2011En route towards the strengthening of the economic structure of new country Curaçao

Contents

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

CHAPTER 1: MACROECONOMIC DEVELOPMENTS . . . . 10

1.1 International and Regional Developments

and their Consequences for Curaçao . . . . . . . . . . . . . . . . . . . . . 10

1.2 Macro Economic Indicators for Curaçao . . . . . . . . . . . . . . . . . . . 26

1.3 Labor Market Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

1.4 Public Finances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

1.5 Monetary Developments in Curaçao . . . . . . . . . . . . . . . . . . . . . . 45

1.6 Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

1.7 SEI Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

CHAPTER 2: SECTORAL DEVELOPMENTS . . . . . . . . . . . . 58

2.1 Production Sectors: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

2.1.1 Agriculture, Livestock and Fisheries . . . . . . . . . . . . . . . . . . . . . . 58

2.1.2 Oil Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

2.1.3 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

2.1.4 Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

2.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

2.3 Trade Sectors: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

2.3.1 Wholesale and Retail Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

2.3.2 Economic Zones and E-commerce . . . . . . . . . . . . . . . . . . . . . . . 83

2.4 Transportation Sector: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

2.4.1 Air Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88

2.4.2 Harbor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

2.5 Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

2.6 Financial and Business Services: . . . . . . . . . . . . . . . . . . . . . . . .106

2.6.1 Commercial Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .106

2.6.2 International Financial and Business Services . . . . . . . . . . . . .109

2.6.3 Insurance Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .113

2.7 Healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

CHAPTER 3: ENHANCING BUSINESS CLIMATE . . . . . . .123

APPENDICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129

Appendix I: Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129

Appendix II: List of Tables and Figures . . . . . . . . . . . . . . . . . . . . . . . . . .131

Appendix III: List of Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

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Preface

The Ministry of Economic Development, on behalf of the Government

of Curaçao, is proud to present the Curaçao Economic Outlook 2011.

This publication provides an overview of Curaçao’s macroeconomic and

sectoral performance in 2010 and 2011, the latter based on the devel-

opments up to the first nine months of the year, and in addition dis-

cusses the prospects for the whole economy in 2012, underlining some

key policy intentions for the near future to strengthen Curaçao’s eco-

nomic structure.

The Curaçao Economic Outlook 2011 was prepared by a team of policy

advisors at the Ministry of Economic Development, with contributions

from several government institutions, the private sector and sector-spe-

cific associations, which shared their latest data and knowledge with

the Ministry.

Through these words, the Ministry would like to thank all who, in one

way or the other, contributed to the realization of this publication.

Ing. Luelo Girigorie, CPC, MSc.

Head of the Directorate of Economic Policy

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Executive Summary

Macroeconomic developmentsThe world economy continued to recover in 2010. As fears of global re-

cession receded in 2009, businesses regained confidence and indus-

trial production and trade boomed. The extent of growth differs per

region: in the major advanced economies growth was modest while

many emerging and developing countries saw robust growth rates. Un-

employment remained high, particularly in advanced economies, while

commodity prices increased sharply in 2010.

The global economy is anticipated to continue growing, and again, ad-

vanced economies are projected to grow at a slower rate in 2011 than

emerging and developing economies.

Commodity prices continued increasing at the beginning of 2011 but

energy prices have receded. Food prices, however, have fallen to a

much lesser extent. As a consequence inflationary pressure is lower in

advanced economies than in emerging and developing economies.

According to preliminary macroeconomic indicators, Curaçao’s econ-

omy grew by a mere 0.1 percent in 2010. Growth was led by a moderate

increase in public and private consumption but was mitigated by shrin -

king public investments and exports. The consumer price index re-

mained moderate at 2.8 percent in 2010.

For 2011, an expansion of 0.3 percent of the real economy is expected.

Growth is led, mainly, by foreign demand, which stimulates local de-

mand. Inflation is estimated at approximately 2.4 percent in 2011.

Traditionally, the CBS provides the relevant labor-market statistics

through their Labor Force Survey. However, as the CBS was preparing

intensely for the Census that took place in March and April of 2011,

the Labor Force Survey was not conducted in 2010. Hence, the usual

overview on participation, employment and unemployment is not avai l-

able in this edition. Some other indicators are used to describe the

latest developments.

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Preliminary figures on public finances up to October 10, 2010 indicate

a surplus of NAF 32.3 million for the treasury of the Island Territory of

Curaçao.

The revenue and expenditure projections were based on a forecasted

economic growth rate higher than the rate registered in 2010. Never-

theless, the actual revenues turned out to be slightly higher than bud-

geted, at NAF 911.4 million, while total expenditures turned out lower

than budgeted, at NAF 879.1 million.

Despite the extra liquidity in the domestic money market, the Central

Bank conducted a passive monetary policy in 2010, owing to a slo w-

down in economic activities. The aggregate money supply of the Nether-

lands Antilles decreased by NAF 241.7 million in 2010, while the net

foreign assets improved by NAF 582.6 million. The official lending rate

of the Central Bank remained unchanged at 1.00 percent in 2010.

As per October 10, 2010, Curaçao and St. Maarten form a monetary

union with a common currency, which at the moment is still the Nether-

lands Antilles guilder, and a common Central Bank, the Central Bank

of Curaçao and St. Maarten. The Central Bank’s monetary policy has

remained directed at the promotion of a stable external value of the

Netherlands Antilles guilder in 2011 and has been a common policy

supported by both countries.

The current account of Curaçao’s balance of payments deteriorated

during 2010, reaching a deficit of NAF 1,633.4 million, mainly because

of the worsening of the trade and the service balance and lower current

transfers received from abroad. Capital transfers increased by NAF 10.7

million, linked to increased capital inflows from Dutch development-aid

funds. The deterioration of the current account in 2010 as compared

to the year before resulted in a drop in the net foreign wealth of the

private sector.

For 2011, the current account deficit is anticipated to stay at approxi-

mately the same level as in 2010.

The execution of the SEI program reached its peak during the last quar-

ter of 2010, as the last day of the year was set as deadline to commit

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the projects’ budget. By January 1, 2011, 97 percent of the budget was

committed to 85 projects. The rest of the projects’ funds should have

been committed by September 30, 2011 at the latest, to avoid under-

spending of the SEI budget. At the moment of writing, negotiations are

being prepared for a new deadline, because some projects have not

been committed yet.

The USONA approved a total of 110 projects for an amount of approxi-

mately NAF 121 million, 33 of which are economic projects. Up to the

end of 2010, not much of the budget for the economic projects had

been touched. In 2011, however, the pace of these economic projects

increased considerably, putting the execution of the projects in full

swing.

Sectoral developmentsAn abnormally high level of rainfall brought the agriculture sector to its

knees during the last months of 2010 and first months of 2011, result-

ing in the import of fruits and vegetables that are otherwise grown lo-

cally. Greenhouse initiatives are being tested to increase the local

supply of fruits and vegetables.

The livestock sector did not show remarkable developments.

The growing lionfish population is threatening the fisheries industry.

Policies to prevent overfishing are being prepared, while actions to com-

bat the lionfish population have already started.

Equipment malfunctions at the BOO plant resulted in a shutdown of the

oil refinery for several months in 2010. The refinery started operating

again in December 2010, but environmental groups are putting pres-

sure on the refinery to reduce pollution, which leads to uncertainties

with regard to its future.

The distribution market was also affected by the shutdown of the refin-

ery: traffic in the harbor diminished and, as a consequence, bunkering

activities for the distributor decreased. Prospects are positive, however,

and there are plans to expand the bunkering and aviation market.

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During 2010, the international energy-price developments were not -

incorporated into local energy prices. In 2011, two additional players

have been allowed to enter the production market in the utilities sector.

Furthermore, policies are being prepared to reduce utility prices and

dependence on oil supply.

Besides the oil refinery and the shipyard company, business by other

players in the manufacturing sector remained the same or decreased

slightly in 2010 as compared to 2009, owing to increased competition

from imported products and high utility costs. The sector is positive

about the future due to the planned policy measures, such as a reform

of the tax structure and energy production.

Sale of important raw materials for the construction sector decreased

by between 8 and 22 percent in 2010 compared to 2009, since several

major projects were completed in the course of 2010. The number of

buildings completed in 2010 was slightly higher compared to 2009.

The number of building permits issued in 2010 decreased, however,

compared to the previous year.

There are, nevertheless, many projects being planned and prepared,

but the contracting portfolios are not known yet.

Sales in the wholesale sector remained the same or decreased slightly,

while sales in the retail sector increased slightly in 2010 compared to

the year before. Challenges for the sector lie in remaining competitive

and increasing the quality of the products supplied.

There are 10 service e-zones in operation on Curaçao and 2 free-zones

for international trading of goods. The total number of visitors to the

free-zones decreased by approximately 16 percent in 2010 compared

to 2009.

It is expected that at least two additional service e-zones will be insti-

tuted soon, but fewer e-zone license applications have been seen in

2011. The number of free-zone visitors is expected to increase.

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Passenger traffic at the Hato International Airport dropped by 3.54 per-

cent in 2010 compared to 2009. The economic crisis was largely to

blame for this drop. Moreover, some airlines deleted routes to lower

costs. Passenger traffic is predicted to increase slightly in 2011 be-

cause the number of flights connected to Curaçao has increased.

Harbor activities in terms of mooring ships (freighters, tankers and

cruise ships) declined by almost 14 percent in 2010 compared to the

year before. The volume of freight also decreased accordingly, from

97,913 TEUs in 2009 to 93,603 TEUs in 2010.

Preliminary figures indicate that cruise-ship calls have increased to 249

in 2011, but will decline to 219 in 2012. The number of cruise visitors

is expected to have increased in both years, despite the decline in calls

in 2012, as bigger ships are expected to anchor.

Tourism arrivals dropped by almost 7 percent in 2010 compared to

2009. Together with the increase in the room stock during recent years,

this resulted in a 3 percentage point decline of the hotel occupancy

rate.

The number of cruise arrivals decreased to almost 390,000 in 2010,

while the number of calls fell from 234 in 2009 to 221 in 2010.

The decline in tourist arrivals is mainly caused by the substantial drop

in arrivals from Venezuela. Arrivals from other South-American countries

increased but were not enough to offset the decrease from Venezuela.

In the first eight months of 2011, arrivals from Venezuela increased

compared to the same period in 2010. Arrivals from North-America in-

creased in 2010 and continue to be extremely positive in 2011. Arrivals

from other Caribbean islands increased in 2010 and continued to in-

crease in the first eight months of 2011. The Netherlands continue to

be the largest market and contributed to the strong growth in arrivals

from Europe in 2010. Growth has declined, however, in 2011.

Lending rates at commercial banks were reduced to approximately

3 to 5 percent and saving rates were reduced to approximately 0.75 to

2 percent in 2010. Most banks experienced an increase in net income

and loan portfolios expanded, stimulated by the lower lending rates.

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Increased competition on the local market will continue increasing the

volatility of interest rates while depreciation of the Euro will decrease

investments and higher imported inflation will mitigate consumer

spending.

The international financial and business services sector is considered

important for the local economy. It is perceived that this sector con-

tributed mostly to the slight economic expansion in 2010. Therefore,

concrete actions are being taken to maintain the country’s position on

the OECD white list, to take Curaçao off Brazil’s black list, sign tax

treaties with Brazil very soon and with other countries in the near future.

Local insurance companies faced increased operational costs in 2010

because of the aftermath of tropical storm Tomas, but this had a mini-

mum effect on their results.

However, falling interest rates, the new constitutional status of the BES

Islands and the anticipated introduction of a general healthcare insur-

ance are threats to insurance companies.

A number of healthcare coverage measures were proposed in 2009

which should have led to structural savings on healthcare spending.

Some have been put on hold for further analysis while others will be in-

troduced shortly. The definite location of the new hospital has been

stipulated and the construction is planned to start in the second quarter

of 2012.

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1.1 International and Regional Developments and Their Consequences for Curaçao

Global DevelopmentsThe world economy continued to recover in 2010. World economic

growth was estimated by the IMF at 5.1 percent in 2010 after the con-

traction of 0.7 percent in 2009. As fears of global recession receded in

2009, businesses regained confidence and industrial production and

trade boomed in the first half of 2010, accelerating in the second half.

The reduced excess capacity, accommodative policies and further im-

provement in confidence and financial conditions encouraged invest-

ments and sharply reduced the rate of job destruction.

The extent of growth experienced differs per region. In the major ad-

vanced economies, growth was modest, reaching an average of 3.1 per-

cent in 2010. Many emerging and developing countries, on the other

hand, saw robust growth rates, averaging 7.3 percent in 2010.

Despite these growth rates, unemployment remained high, since the

increase in unemployment in advanced economies was very severe du -

r ing the crisis years. Youth unemployment is a particular concern in

emerging and developing countries, despite the low national overall un-

employment rates.

Following the collapse during the crisis, global capital flows rebounded

sharply in 2010, but are still below pre-crisis averages of 2006/2007

in many countries. Strong growth prospects and relatively high yields

are attracting capital flows into emerging markets, while sluggish ac-

tivity and damaged financial systems continue hampering flows be-

tween advanced economies. As a consequence, stock markets and

credit have rebounded from the falls during the crisis, particularly fast

in emerging markets, reaching or surpassing average pre-crisis levels

in some of the larger markets.

The robust capital flow to emerging markets may continue, even though

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questions about macroeconomic policies and geopolitical uncertainties

could slow flows on the short run. The difference between advanced and

emerging economies is not expected to diminish significantly, however.

Furthermore, advanced economies face the challenge of preserving or

regaining fiscal credibility owing to high public deficits and debts. Most

of the advanced countries are planning to tighten fiscal policy. Most

G20 advanced economies have made it their target to halve deficits by

2013 compared to the levels in 2010. However, well-specified medium-

term measures to reduce debt remain absent in many advanced coun-

tries, putting upward pressure on interest rates and lowering potential

output and slowing economic recovery as a consequence. The eventual

increase in interest rates would affect emerging economies also by

destabilizing global bond markets, which would slow investments in

general and thus in the developing economies in particular.

Commodity prices increased sharply in 2010, especially in the second

half of the year, owing to a combination of strong increase in demand

(oil and food) and supply shocks (food), e.g. lower agricultural produc-

tion because of unfavorable weather conditions. Commodity prices con-

tinued increasing at the beginning of 2011 because of lower oil

production, owing to unrest in the Middle-East and North-Africa, which

resulted in increased overall marginal costs and thus higher costs of

production in the agricultural sector. Nevertheless, in the last months

of 2011, energy prices have receded to levels far below their peaks in

that same year. Food prices, however, have fallen to a much lesser ex-

tent. As a consequence inflationary pressure is lower in advanced

economies than in emerging and developing economies, because food

and fuel account for a higher share of consumption in the latter.

In advanced economies, inflation is projected to be approximately 2.5

percent in 2011 and then recede to approximately 1.5 percent in 2012,

while in emerging and developing countries inflation is likely to be

around 7.5 and 6 percent in 2011 and 2012 respectively. The high ex-

pected inflation in the emerging and developing economies is led by

demand pressures (core inflation)1.

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1 Excluding food and energy prices

The global economy is expected to continue growing. For 2011, the

world economy is expected to grow by 4.0 percent and this same growth

rate is expected in 2012. However, in advanced economies, again

growth is expected to be lower in 2011–at 1.6 percent– than in emer g-

ing and developing economies–at 6.4 percent. Output in advanced

economies remains below potential, resulting in persistent high unem-

ployment, and the situation is expected to remain so considering the

low growth rate owing to pre-crisis excesses and crisis wounds. Further-

more, consumer and business confidence has deteriorated and

stronger activities are expected to be delayed. This makes the outlook

point to low growth in 2012 also–at 1.9 percent.

In emerging economies the crisis left no lasting wounds. Hence exports

have recovered and shortfalls in external demand are compensated by

domestic demand. Capital outflows turned into capital inflows because

of better growth prospects and higher interest rates than in advanced

economies. Growth in emerging and developing economies is estimated

to decline from an average of 6.4 percent in 2011 to 6.1 percent in

2012, as capacity constraints, policy tightening and slowing foreign de-

mand are expected to dampen growth.

Latin America and the CaribbeanAccording to estimates of the Economic Commission for Latin America

and the Caribbean (ECLAC), the economy of the Latin American and

Caribbean region grew by an estimated 6 percent in 2010. The upturn,

however, has been uneven among the sub regions.

Growth in 2010 firmed up the recovery that began in most of the re-

gion’s economies in the second half of 2009, thanks to actions to coun-

terbalance the impacts implemented by many of the countries in the

region combined with improving conditions in the global economy. The

stronger economic growth boosted demand for labor, thanks to which

the region’s unemployment rate eased back to around 7.6 percent and

the quality of new jobs improved. Economic growth was coupled with a

slight rise in inflation, from 4.7 percent in 2009 to around 6.2 percent

in 2010, basically reflecting the behavior of prices for a number of in-

ternational commodity prices including food and fuel. Labor market per-

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formance, more readily available credit and brightening expectations

boosted private consumption which, along with a significant increase

in investment in machinery and equipment, became the engine of de-

mand in 2010.

Commodity exporting countries (agricultural, mineral and petroleum

goods) benefited from terms-of-trade gains and higher export values.

However, most of the Central American and Caribbean countries, once

more, sustained net losses in terms of trade owing to higher import

values, which worsened the current-account position. These adverse

effects were partially offset by a slight upturn in tourism and in remit-

tances sent home from developed countries by migrant workers.

ECLAC projects a slight fall in the region’s growth rate to 4.2 percent in

2011 owing to the slightly dampened global economic outlook and the

easing off of public spending as a stimulus in many countries because

excess idle capacity has been used up.

According to the IMF, the pace of expansion in Latin America and the

Caribbean has begun to moderate because many economies have fully

recovered from the global crisis and macroeconomic policies are being

tightened. Growth remains above potential, at 4.5 percent in 2011 and

4.0 percent in 2012, with indicators suggesting that mainly exporting

economies (in South America) may be overheating. Economic growth is

projected to slow as domestic demand growth moderates, in response

to less accommodative macroeconomic policies, and external demand

weakens.

The outlook for commodity exporting countries (e.g. Argentina, Chile,

Paraguay, Peru and Uruguay) is positive with growth rates of approxi-

mately 6 percent in 2011. Growth in South America is projected average

4.9 and 4.1 percent in 2011 and 2012 respectively.

In Central America and the Caribbean, economic activity remains

subdued, reflecting stronger trade linkages with the U.S. and other

advanced economies and, in some cases, high levels of public debt.

Growth will continue to be constrained by slow recovery of remittances

and tourism at between 3.3 and 3.9 percent in 2011 and increase to

between 4.0 and 4.3 percent in 2012.

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Inflation is projected to increase from 6 percent in 2010 to 6.7 percent

in 2011, because of the overheating and as commodity prices in-

creased in 2011, but to recede to 6 percent in 2012 as activity moder-

ates and commodity prices stabilize.

The region faces some downside risks, however: sharper slowdown in

advanced economies would dampen growth, especially in economies

dependent on trade, tourism spending and remittances. Moreover, the

strong presence of Spanish banks in the region could raise some risks

while potential spillovers from China could show up through trade

dampening the outlook for the commodity exporting countries. However,

domestic demand growth could exceed expectations if global risks un-

wind quickly, resuming the strong wave of capital flows to the region,

which is an upside risk. The risk pattern is reinforced by the region’s in-

ternal and external integration. An eventual slowdown in global growth

would cause a drop in the region’s commodity export.

Furthermore, many neighboring countries are profiting from strong

growth in Brazil. Consequently, an abrupt slowdown in activities in Brazil

would adversely affect the region. The challenge that lies ahead is to

maintain the region’s resilience to potential problems.

North AmericaAccording to the IMF, the US economy grew in 2010 by almost 3 percent

in real terms, after contracting by 2.6 percent in 2009. This recovery

was mainly supported by private demand. By the last quarter of 2010,

consumer demand was rising at its fastest pace in five years. Low cor-

porate borrowing rates and the easing tightness of lending conditions

reflected improved financial conditions resulting in a pickup of eco-

nomic activities. This has helped to rebuild consumer confidence

despite poor performing labor and housing markets.

After shredding more than 8.5 million jobs during crisis years, the labor

market has managed to add 1.5 million jobs, which was barely suffi-

cient to keep up with growth of the work-age population. A large part of

the decline in the unemployment rate is attributable to a decline in par-

ticipation. The unemployment rate reached 9.6 percent in 2010.

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According to forecasts of the IMF, the real GDP of the US will increase

by 1.5 percent in 2011 and in 2012 by 1.8 percent with a large number

of unsold properties and high mortgages repressing consumption.

House prices in the US have been declining, with harmful effects on

household and financial balance sheets, deteriorating household and

business confidence. Unemployment is high at approximately 9.1 per-

cent in 2011 and is expected to remain so in 2012, holding back wages.

The fiscal deficit and debt have resulted in a decreased solvency rating

for the US, and financial turmoil in the Euro area has tightened financial

conditions and weakened global demand with consequences for the

US also.

Inflation is moderate at 3 percent in 2011, but up from 1.6 percent in

2010. In 2012, the inflation rate is predicted to drop back to 1.3 per-

cent, in line with the pullback of commodity prices.

There are, however, some downside risks to the projected economic

growth in the US: growth will suffer if the temporary payroll tax cuts and

increased unemployment insurance are discontinued in 2012 and if

political consensus on the design of debt reduction is not reached soon.

Furthermore, prolonged delay in recovery of house prices, sustained

losses in equity markets and upside risks on commodity prices would

further repress consumer spending.

Sooner-than-expected restored financial stability and consumer and

business confidence could strengthen growth on the short run.

The main challenge for the US lies in reducing the structural deficit and

public debt in an environment of weak growth and high unemployment.

Economic developments in Canada in 2010 mirrored developments in

the U.S.A. The deceleration reflected the drag on Canadian export from

weak US activity, strong import growth from investment spending and

cooling of domestic activities.

Canada’s GDP is estimated to have increased by 3.3 percent in 2010

and is projected to expand by 2.1 percent in 2011 and by 1.9 percent

in 2012, with domestic demand being the force behind the growth. Job

creation has rebounded at a faster pace compared to the U.S.A., but a

slower pace of recovery over the near term is expected to keep unem-

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ployment at approximately 7.5 percent in 2011 and 2012.

US risks are expected to shape Canada’s outlook through real and

financial spillovers.

EuropeThe IMF estimates that GDP in Europe grew by 2.2 percent in 2010,

despite financial turbulence in peripheral countries of the Euro area

during the last quarter of 2010. Concerns about banking sector losses

and fiscal sustainability caused sovereign spreads to widen in the Euro

area. The situation was controlled by strong policy responses at national

and EU level with measures to improve fiscal balances and to push for-

ward with structural reforms in the affected areas, liquidity support and

security purchases by the ECB. Therefore, the damage to economic

activity was limited to affected areas only and did not spread to the rest

of Europe.

Nevertheless, the ongoing fiscal tightening and the effect of the crisis

on consumer and business confidence are repressing growth this year,

especially after the first quarter. The year 2011 is predicted to show a

real expansion of 2.0 percent in Europe while for 2012 a 1.5 percent

growth is estimated.

Growth in emerging countries was higher in 2010 at 4.5 percent, com-

pared to 1.8 percent in the advanced economies, and is predicted to

be higher at 4.3 percent in 2011. In 2012, however, growth in emerging

countries is expected to decline to 2.7 percent as domestic and external

demand moderates. In advanced countries, GDP growth of 1.6 and 1.1

percent in 2011 and 2012 respectively is expected. Prospects across

regions are likewise divergent, reflecting differences in the state of

public and private balance sheets and the stance of macroeconomic

policies.

Germany for instance, which has been the continent’s growth locomo-

tive, grew by 3.6 percent in 2010, but growth is expected to slow down

to 2.7 percent in 2011 and to 1.3 percent in 2012. The expected slow-

down is due to the withdrawal of fiscal support and an expected slow-

down in external demand growth.

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Retrenchment of fiscal stimulus, which is expected to reduce consump-

tion growth and weaken export growth as consequence of slower exter-

nal demand, will cause France’s growth rate in 2011 and 2012 to be

in line with the 1.5-percent growth rate of 2010.

In advanced economies outside the Euro area, activity growth is like-

wise differentiated. The UK’s economy, for instance, grew by 1.4 per-

cent in 2010 and is projected to grow by 1.1 percent in 2011 and 1.6

percent in 2012 as fiscal consolidation dampens domestic demand.

In Sweden, real activity grew by 5.7 percent in 2010, but the growth

rate is expected to decelerate to 4.4 and 3.8 percent in 2011 and 2012

respectively amid improving financial conditions and signs of over-

heating in the real-estate sector.

In emerging Europe, recovery is expected to continue, boosted by inter-

nal demand, owing to credit growth accompanied by accommodative

macroeconomic policies. Growth is expected to remain more subdued

in countries that experienced unsustainable domestic booms.

In general, countries that avoided major imbalances and have benefit-

ted from the strong rebound in global manufacturing are close to pre-

crisis growth rates in 2011. Some others are below pre-crisis rates

because of sharp economic adjustments as consequence of the finan-

cial crises while others are recuperating from recent crises while ad-

dressing a number of challenges, such as weak banking systems and

high unemployment. The rest of the European countries are likely to

grow at less than pre-crisis averages as some are shaken by contagion

from the Euro area periphery while others are less affected.

Inflation has remained subdued in advanced Europe at 1.9 and at 2.5

percent in 2010 and 2011 respectively, and is expected to remain low

at 1.5 percent in 2012 in the absence of inflation expectations and be-

cause there is still excess capacity. In emerging Europe, inflation has

been higher at 5.3 percent in 2010 and 2011 but is expected to decline

to 4.5 percent in 2012.

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The uncertain environment dominated by tension from the euro area

debt crisis imply downside risks to growth in Europe, as well as negative

spillovers from slower US growth. Securing debt sustainability and

strengthening the financial systems remain a priority for most European

countries. The largest economies are already implementing measures

to reduce their deficits.

Commonwealth and Independent StatesRecovery in CIS has been proceeding at a steady pace, supported by

higher commodity prices that have been boosting production and em-

ployment in the region’s exporting countries. The rebound in real activity

in Russia is also benefiting other countries through trade, remittances

and investment. On the other hand, dependence on external financing

and lingering banking sector vulnerabilities are holding back growth in

several CIS economies.

Real activity in CIS increased by 4.6 percent in 2010 and is projected

to expand by 4.6 percent in 2011 and by 4.4 percent in 2012, but

growth prospects differ within the region.

In Russia and other energy exporters, growth is estimated to pick up

modestly with growth rates at approximately 4.5 percent in 2011 and

2012. Growth is expected to slow down slightly in 2012 compared to

2011 as energy prices decline somewhat. Energy importers are ex-

pected to benefit from the rebound in remittances from Russia and oth-

ers from the return of financial stability.

Inflation in the region has been on the rise, led by higher commodity

prices, especially in the first half of 2011, the high share of food in the

consumption basket and demand pressure.

For most countries in the region, prospects depend highly on the economic

development in Russia, the rest of the world and commodity prices. Higher

commodity prices represent an upside risk to commodity exporting coun-

tries. But global slowdown would reduce commodity prices, dampening

the prospects for the region. Furthermore, lower external demand from

advanced economies represents a downside risk.

The key challenge is to abort crisis-related macroeconomic and financial

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policies in a way that provides sufficient support to the incomplete re-

covery without jeopardizing price stability, reduce external vulnerability

and raise potential growth through a more diversified pattern of eco-

nomic development.

AsiaReal GDP growth in Asia is moderating after a sharp rebound from the

global crisis, with a GDP growth of 8.2 percent in 2010 and a projected

growth of 6.2 and 6.6 percent in 2011 and 2012 respectively. The strong

rebound is supported by a strong export performance, private domestic

demand and in some cases rapid credit growth. Asia continues to outpace

other regions but external demand in emerging Asia has dampened

recently because of slowdown in the US and the Euro area.

Inflation in Asia averaged 4.1 percent in 2010 and is projected to ave rage

5.3 and 4.0 in 2011 and 2012 respectively. Inflation was higher in

developing Asia than in advanced Asia in 2010, and the difference is

likely to remain. Inflation pressures are higher in economies with

sustained credit growth, positive output gaps, and/or relatively accom-

modative policies.

China, today the world’s second largest economy and its leading ex-

porter and manufacturer, will remain a powerful source of external de-

mand for Asian producers in the foreseeable future. Growth in China is

projected to remain robust at 9.5 percent in 2011 and 9.0 percent in

2012 after growing by 10.3 percent in 2010, driven by private demand

caused by rapid investment growth, favorable labor market conditions

and continued policies to increase disposable income of households.

Inflation pressure in China remains, but efforts to withdraw credit stimu-

lus and to restrain property price inflation have been gaining ground.

India’s economic growth slowed down in the last quarter of 2010 as the

manufacturing sector was held back in the wake of multiple interest-rate

increases by the central bank amid rising prices. The Reserve Bank of India

raised its benchmark lending rates in seven equal installments of 0.25

percentage points since the beginning of 2010 to control rising prices.

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The Indian economy grew by 10.1 percent in 2010, led by infrastructural

investments, and is forecasted to grow by 7.8 and 7.5 percent in 2011

and 2012 respectively, driven by private consumption.

After a rapid growth at 8.4 percent in 2010, growth in the newly indus-

trialized Asian economies is projected to moderate at 4.7 percent in

2011 and 4.5 percent in 2012 as activity moderates to close positive

output gaps. Both the internal and external private demand remain

important drivers behind growth.

ASEAN economies grew by 6.9 percent in 2010 and are projected to

grow by 5.3 and 5.6 percent in 2011 and 2012 respectively, driven by

domestic demand. ASEAN economies are led by Indonesia, where

strong consumption and recovery in investments are projected to raise

growth to 6.4 percent in 2011 and 6.3 percent in 2012.

Japan, the third largest economy in the world after the US and China,

grew by 3.9 percent in 2010 and was one of the highest among the

advanced economies. Japan’s growth was driven by significant fiscal

stimulus and a rebound in exports. Forecasts for 2011 are somewhat

pessimistic, because of damages caused by the Tohuku earthquake.

Japan’s economy is projected to contract by 0.5 percent in 2011, de-

spite an expected vigorous expansion in the second half of 2011.

Growth is projected to increase to 2.3 percent in 2012, with activity

sharply rebounding on reconstruction investment. Japan experienced

deflation of 0.7 percent in 2010 and further deflation is projected of

approximately 0.5 percent in 2011 and 2012.

In Australia, flooding in key mining and agricultural regions subtracted

from growth in 2010. The economy grew by 2.7 percent in 2010 and

for 2011 and 2012 the economy is projected to grow by 1.8 and

percent respectively.

In New Zealand, despite the recent earthquakes, growth is projected to

pick up. In 2011 a 2.0-percent growth rate is projected after already

increased economic activities of 1.7 percent in 2010. In 2012 growth

is expected to rise to 3.8 percent supported by strong terms of trade

and positive trade spillovers from the region.

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The financial turbulence in the Euro area and the US pose downside

risks for the region, since these would affect export in Asia through

trade linkages. Despite increase in intraregional trade in Asia, two-third

of the final demand comes from outside the region.

The Middle East and North Africa According to the Economist Intelligence Unit (EIU), economic growth in

the Middle East and North Africa (MENA) picked up in 2010, boosted

by the increase in oil prices, a stronger global economy and loose do-

mestic policy conditions. According to estimates of the IMF, GDP in

MENA grew by 4.4 percent in 2010.

Production in many countries in the region has been boosted by higher

commodity prices and external demand. In addition, government spen d-

ing programs have been fostering recovery in many oil-exporting coun-

tries.

In contrast, political discontent and high unemployment are causing

social unrest in a number of countries, which might dampen short-term

economic growth as these factors weigh heavily on tourism receipts,

capital flows and investment. Based on the above mentioned factors,

the IMF forecasts that economic activities in the region will increase by

4 percent in 2011 and by 3.6 percent in 2012.

Growth in oil-exporting countries is projected to pick up to almost 5 per-

cent in 2011, slightly higher than the 4.4 percent in 2010. In Qatar, for

instance, economic activity is projected to increase by 18.7 percent

boosted by continued expansion in natural gas production and large in-

vestment expenditures. In Saudi Arabia, growth is forecasted to be 6.5

percent, supported by public infrastructural investments. In the Repu b-

lic of Iran, growth is anticipated to stall temporarily as subsidies for en-

ergy and other products are phased out. This reform is expected to yield

benefits on the longer run. Disruptions of oil production in Libya in-

creased oil supply by other OPEC suppliers.

In oil-importing countries, growth in economic activity is more subdued,

down to 1.4 percent in 2011 compared to 2010 (4.5 percent).

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Activity in some countries will be constrained by domestic social unrest

and an associated slow recovery in tourism receipts and remittances.

Growth in oil-importing countries is projected at 2.6 percent in 2012,

harmed by a slow recovery in investment.

Inflation is high in the MENA region, reaching almost 10 percent in 2011,

but is expected to decline somewhat in 2012, reflecting receding

commodity prices. For oil-exporters, inflation is forecasted to fall from 10.8

percent in 2011 to 7.6 percent in 2012 while for oil-importing countries,

inflation is anticipated to stay below 8 percent during 2011 and 2012.

Downside risks are the domestic effects of political and social unrest

that could be larger than expected, especially if unrest spills over to

additional countries in the region. In addition, financial markets have

not stayed immune, and as these developments on the financial market

continue, higher funding costs for governments and firms could be the

result. Moreover, weak performance of advanced economies, mainly

the US and Europe, could adversely affect the region’s export earnings,

fiscal and external imbalances and growth.

The MENA region is challenged to raise growth and tackle high unem-

ployment, mainly among young people. Oil exporters should strengthen

or develop financial systems and promote economic diversification.

Sub-Saharan AfricaSub-Saharan Africa has recovered well from the financial crisis. The

region grew rapidly in 2010 by 5.4 percent. Growth in domestic demand

remained robust, trade and commodity prices rebounded and macro-

economic policies remained accommodative.

Terms of trade gains are supporting the region’s external balances and

gradual reorientation of export towards fast-growing regions such as

Asia is being sustained. As a consequence, according to the IMF, real

activity in Sub-Saharan Africa is projected to expand by 5.2 and 5.8

percent in 2011 and 2012 respectively.

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However, prospects differ considerably within the region. Growth is

being led by the low-income countries which are projected to grow by

approximately 6 percent in 2011 and by 6.5 percent in 2012, stimu-

lated by launching of oil production (Ghana) and infrastructural invest-

ment and improved agricultural production (Kenya and Ethiopia).

The prospect of oil-exporting countries is likewise positive, with a fore-

casted growth rate of almost 6 percent in 2011 and over 7 percent in

2012, sustained by continued strength in domestic public investment

spending and strong rebound in oil production in Angola following the

disruption in 2011.

Middle-income countries are more vulnerable to the crisis as they are

more integrated with the global market, hence recovery is delayed. In

South Africa, the region’s largest economy, recovery is projected to remain

relatively modest at approximately 3.5 percent in 2011 and 2012,

because of an increase in unemployment, high household debt, low

capacity utilization, the slow down in advanced countries and substantial

real exchange rate appreciation. Growth is driven by private consumption

and investment supported by a low interest rate environment.

The region is vulnerable to some external forces, however. Europe is

the main trading partner for the region’s non-oil exporting countries.

Consequently a slowdown in Europe hurts manufacturing exporters in

the region.

Implications for CuraçaoAfter contracting by 0.5 percent in 2009, activities in Curaçao increased

by 0.1 percent in 2010, lagging far behind the Latin American and

Caribbean region in general and the Caribbean in particular. The slight

increase in economic activities is attributable to increased public

consumption of goods and services with regards to the dismantling

activities and the SEI program and increased private consumption.

These increases were offset by decreased public and private invest-

ments and export.

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Curaçao is largely dependent on the import of goods from its main

tra ding partners, Venezuela, the U.S.A. and the Netherlands. Hence,

inflationary pressure in these regions leads to increased inflation in

Curaçao. Inflation remained subdued in the main trading countries and

as a consequence inflation in Curaçao remained moderate at 2.8

percent.

For 2011, the economy is expected to expand by 0.3 percent and inflation

to be slightly lower than the year before.

However, since Curaçao’s export of principally (tourism) services is largely

to the main trading countries, the risks of decreased growth in these coun-

tries pose risks to the island’s medium-term macroeconomic perfor -

mance. Any slowdown in growth in these countries would negatively affect

demand for the island’s tourism services.

Curaçao has achieved a sustainable level of public debt and this poses

prospects for stable long-term economic growth in general where

investments in infrastructure and socio-economic projects can be

improved. A compulsory balanced budget rule has been set, aimed at

avoiding the unrestrained buildup of public debt in the future.

On the downside, development aid from the Netherlands is planned to

stop by 2013, threatening the infrastructural and socioeconomic invest-

ments.

Sources:

Deloitte: 4th Quarter 2010: Global Economic Outlook. Multi Speed Recovery.

Economist Intelligence Unit, (The Economist) May 2011

International Monetary Fund: World Economic Outlook, April 2011

International Monetary Fund: World Economic Outlook Update, June 2011

International Monetary Fund: World Economic Outlook, September 2011

United Nations: Economic Development in Africa 2010 south – south Coopera-

tion: Africa and the new forms of Development Partnership

World Bank: East Asia and Pacific Economic Update 2011, Vol.1

World Bank: Global Economic Prospects; Crisis, Finance and Growth 2010.

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Websites:

http://www.unctad.org

http://www.nytimes.com

http://www.blogjaviervega.blogspot.com

http://www.cfr.org/refugees-and-the-displaced/eu-concerns-over-mideast-mi-

grants/p24672

http://www.eclac.org/cgi-

bin/getProd.asp?xml=/publicaciones/xml/4/41974/P41974.xml&xsl=/de/tpl-

i/p9f.xsl&base=/tpl-i/top-bottom.xslt

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1.2 Macroeconomic Indicators for Curaçao

IntroductionThis section presents preliminary figures on Curaçao’s macroeconomic

performance in 2010, and a macroeconomic analysis for a short-term

forecast. The figures presented for past years are actual figures com-

piled by Curaçao’s Central Bureau of Statistics (CBS). The macroeco-

nomic analysis of the forecast is carried out with the help of the

macroeconomic model Curalyse and is based on expected develop-

ments in the main sectors and implementation of planned economic

reforms.

Macroeconomic review 2010In 2010, Curaçao’s economy grew by a mere 0.1 percent. Growth was

led by a moderate increase in public and private consumption but was

mitigated by shrinking public investments and exports. The consumer

price index remained moderate in 2010, despite increased interna-

tional prices for food and oil. Table 1.1 presents the main macroeco-

nomic indicators. The figures for 2008 are actual, while those for 2009

and 2010 are based on preliminary analysis by the CBS.

Table 1.1 Macroeconomic indicators 2008-2010

Nominal Figures (in millions NAF) 2008 2009* 2010*

Private consumption 3662.0 3560.2 4127.2

Private investment 1905.7 1921.3 1965.7

Public consumption 812.2 797.7 856.3

Public investment 70.4 70.5 70.4

Export of goods and services 3547.9 3100.5 2934.2

Import of goods and services 4926.4 4315.1 4669.7

Gross Domestic Product 5071.8 5135.2 5284.1

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Volume Mutation (in %)

Private consumption 2.6 -4.5 12.8

Private investment 14.8 -0.9 -0.4

Public consumption 0.0 3.2 6.3

Public investment 2.3 -1.6 -2.8

Export of goods and services 15.5 -14.1 -7.9

Import of goods and services 16.1 -13.9 5.3

Gross Domestic Product 2.2 -0.5 0.1

Price mutation (in %)

Inflation 6.9 1.8 2.8

Source: Central Bureau of Statistics

*Preliminary figures

Macroeconomic Outlook for 2011 and beyondThis section presents the macroeconomic outlook for 2011 and 2012

based on expected developments in the main sectors and implemen-

tation of planned economic reforms such as those mentioned in the

SEI policy program, reforms of the process to obtain business permits

and the tax reform.

The macroeconomic outlook for 2011 is based on the local and interna-

tional, macroeconomic and sectoral developments for the first six to nine

months. This trend has been extended for the remainder of the year.

Due to uncertainties with regard to Curaçao’s economic development,

e.g. the implementation of economic reforms, the elimination of red

tape within the government and the macroeconomic development of

Curaçao’s main trading partners, the outlook for 2012 is based on two

possible scenarios, an optimistic and a cautious one.

For 2012, a baseline reference path is given, on the assumption of an

unchanged policy. This baseline scenario is used to measure the eco-

nomic impact of the assumptions made in the two other scenarios. The

assumptions made in the baseline scenario do not reflect policy

assumptions of neither the government nor other experts on the island.

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Outlook 2011This section presents the assumptions which are used to forecast the

macroeconomic developments in 2011. The assumptions mentioned

below occur autonomously and, as mentioned previously, are based on

indications of the developments in the first six to nine months of 2011:

· An increase in the number of stay-over arrivals, especially from the

North-American and South-American market, mitigated by a slow-

down of arrivals from the European market. This is reflected by a

7-percent increase in stay-over nights in 2011 compared to 2010;

· A 1-percent decline in private investments. The incentives to invest

remain withheld owing to, among other factors, the lower occupancy

rate of hotels in the past years and international economic and

financial turmoil. The previous decline in occupancy rates resulted

in postponement of planned investments in room inventory to 2012;

· NAF 20 million in total investments related to SEI projects;

· Public finances show no deficit, in accordance with the agreements

with College financieel toezicht (Cft). Real public consumption

declines by approximately 10 percent, as it picks up in the third and

the fourth quarter of 2011. Public investments increase by 20

percent in 2011 compared to 2010 as they slow down in the second

half; and

· Non-tourism exports show no real growth in 2011 compared to

2010.

The results based on the abovementioned assumptions are presented

in table 1.2. The increase in exports in the form of tourism services

results in a higher demand for local products and services. No invest-

ments to handle the increased demand are shown, because there

already is sufficient inventory to deal with the increased demand of the

tourism sector. As business production increases to accommodate the

higher local demand, employment by enterprises grows. However, this

growth in employment is not sufficient to stimulate a decrease in the

number of unemployed. The increased employment of businesses,

combined with the increased wage rate, results in an increased con-

sumption of 0.2 percent. This increased consumption can be derived

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from the 1.4-percent increase in the number of 210-feet containers en-

tering in the first nine months of 2011 compared to the same period of

20102 and from the slight increase in the amount of consumer loans

and mortgages in the first nine months3 of 2011 compared to the same

period in 2010.

The real economy grows by 0.3 percent in 2011 compared to 2010. In-

flation is estimated at 2.4 percent.

Table 1.2 Macro economic outlook for 2011

Changes (compared to 2010) 2011

Prices in %

Wage rate businesses 3.1

Consumption price 2.4

Volumes in %

Tourist days 7.0

Exports 3.7

Imports 0.0

Private consumption 0.2

Business investments -4.0

Business production 0.3

Real GDP growth 0.3

Number *1000

Unemployment 0.2

Source: Curalyse

Outlook 2012This section presents a forecast of the macroeconomic developments

in 2012 and is based on expected developments in the main sectors

and planned reforms, such as the introduction of a Competition Author-

ity, elimination of red tape and the introduction of a new tax structure.

The current tax structure is perceived as complicated and uncompeti-

tive because of its high tariffs. Hence, a reform of the structure is

needed to improve Curaçao’s competitive position compared to the

region and other countries of the Dutch Kingdom.

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2 Source: Curaçao Ports Authority3 Source: Central Bank of Curaçao and St. Maarten

Baseline scenarioFor the purpose of measuring the impact of the possible scenarios, first

the baseline scenario is given. The assumptions of the baseline

scenario are:

· A 2-percent increase in stay-over nights, which is the average over

the past 15 years;

· The amount of private and public consumption and investment will

remain at the same level in 2012 as in 2011;

· The investments and reforms within the framework of the SEI will

be neglected; and

· Exports in the non-tourism sectors show zero growth in 2012

compared to 2011.

The macroeconomic effect of the baseline scenario is presented in

table 1.3. In this scenario, growth in 2012 is led by the increase in

tourism arrivals which manifests itself in a 2-percent increase in the

number of stay-over nights. This slight increase in tourism demand

encourages a slight (0.1%) increase in business production and, as a

consequence, in real GDP also of 0.1 percent. The increased demand

is not enough to increase the number of jobs available and accommo-

date citizens that are entering the labor market. Hence, the number of

unemployed persons increases by 300.

Inflation is estimated to follow the trend in 2011 at 2.3 percent.

Optimistic scenarioFor the optimistic scenario, the following assumptions are made:

· Stay-over nights will increase by 10 percent in 2012 compared to

2011 owing to intensified marketing efforts in existing markets and

the tapping of new markets such as Canada and Germany;

· The new fiscal structure is introduced as of January 1, 2012 and

includes:

o a decrease in profit tax, from 34.5 percent to 27.5 percent;

o a reform of the structure of wage and income taxation;

o an increase of turnover tax from 5 to 6 percent; and

o a decrease of the excise duty on gasoline of NAF 15.75 per

100 liter and on Low Sulfur Diesel of NAF 8.50 per 100 liter.

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· Private investments increase by NAF 38 million as investments in

room inventory are continued. The hotel occupancy rate reaches

the level of 75 percent, which will encourage new investments in

the tourism sector;

· Investments within the framework of the SEI amount to

NAF 40 million in 2012; and

· The Competition Authority and Red Carpet instead of Red Tape are

fully introduced implying an increase of labor productivity of

0.25 percent.

· Other assumptions remain the same as in the baseline scenario.

The macroeconomic impact of the optimistic scenario is given in table

1.3. In the optimistic scenario, growth in 2012 is led by an increase in

the number of stay-over nights, increased private investments and

increased labor productivity. Stay-over nights increase by 10 percent in

2012 owing to, among other factors, increased marketing efforts in the

North-American market, especially in the North-Eastern part of North

America and the new air connection established with Air Berlin in the

last quarter of 2011.

The higher number of tourists in 2011 and the first months of 2012

gives a boost to private investments in 2012 with a NAF 38-million

expansion of the room inventory as planned, according to the Curaçao

Tourist Board (CTB).

Most of the remaining SEI budget is used. Hence, SEI investments are

for an amount of NAF 40 million. The SEI investments accelerate public

consumption and investment as several SEI projects are co-financed

by the government.

The higher tourism demand, public consumption and public and private

investments boost economic growth by increasing business production,

which on its turn boosts job creation. Unemployment is reduced by 200

persons, contributing to an increased real private consumption of 0.2

percent. The growth of private consumption is mitigated by the higher

turnover tax, which causes an increase in prices. The interaction

between increased local demand and supply results in an increased

real GDP of 0.9 percent.

The wage rate is increased because of the increase in productivity.

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The increase in turnover tax and wages results in an inflation of 3.4

percent in 2012.

Cautious scenarioThe cautious scenario is based on the following assumptions:

· The marketing efforts are less intense compared to the optimistic

scenario, resulting in a 6-percent increase in stay-over nights in

2012 compared to 2011;

· The new fiscal structure is introduced per January 1, 2012 as men-

tioned in the optimistic scenario;

· Private investments increase by NAF 20 million compared to 2011;

· Investments within the framework of the SEI are for NAF 20 million;

and

· The introduction of the Competition Authority and Red Carpet in-

stead of Red Tape is delayed, implying an increase in labor produc-

tivity of only 0.1 percent.

· Other assumptions remain the same as in the baseline scenario.

For the cautious scenario, a 6-percent increase in stay-over nights is

considered in 2012. The increase in tourism demand of the previous

and current year induces investments in room inventory by NAF 20 mil-

lion. SEI investments are for another NAF 20 million, boosting public

consumption and investments.

The higher tourism demand, public consumption and private and public

investments give a boost to economic growth through an increase in

demand for local products and services. However, due to increased

labor productivity, the demand for labor remains idle. The lack of job

creation has a negative impact on consumption as the purchasing

power of households decrease because of the increased consumption

prices and is not compensated by an increase in wages.

Business production and real GDP increase by 0.3 percent each, lack-

ing force to increase employment. Unemployment increases by 200 per-

sons due to migration and demographic developments. Inflation is at

3.3 percent, as the turnover tax is raised and wage rates are increased.

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Table 1.3 Macroeconomic impact scenarios 2012

Changes (compared to 2011) Baseline Optimistic Cautious

Prices in %

Wage rate businesses 2.9 3.7 3.3

Consumption price 2.3 3.4 3.3

Quantities in %

Tourist days 2.0 10.0 6.0

Exports 1.0 3.8 1.9

Imports -0.4 3.2 1.5

Private consumption -0.1 0.2 -0.6

Business investments -0.2 3.8 1.9

Business production 0.1 0.9 0.3

Real GDP growth 0.1 0.9 0.3

Number *1000

Unemployment 0.3 -0.2 0.2

Source: Curalyse

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1.3 Labor-Market Developments

IntroductionThis section will give a summary of important developments regarding

the labor market in Curaçao. Unfortunately, the labor market statistics4

for 2010 are not available because the CBS did not conduct the Labor

Force Survey. As a consequence, a different approach is used this time.

Based on some other useful indicators, an approximation of the

develop ments is discussed. These indicators are:

o the number of requests for dismissal;

o the number of new registrations for assistance in finding a job; and

o the number of vacancies and placements into these vacancies.

The statistics were collected from the Ministry of Social Affairs, Labor

and Welfare (the former DirAZ and DWI).

An overview from 2006 on is given for the purpose of comparing the

developments in 2010 to those of previous years.

Local Developments

Dismissal RequestsTable 1.4 provides an overview of different developments related to dis-

missals in Curaçao.

In certain cases, when an employer wants to terminate a contract with

an employee, the approval of the former Directorate of Labor Affairs

(DirAZ, now a section of the Ministry of Social Affairs, Labor and Wel-

fare) is needed. The dismissal legislation is primarily meant to protect

the weaker party of the labor market, the employee, from unreasonable

and arbitrary dismissal, but also keeps the interests of the employer in

mind. Since proper functioning of the business comes first to the

employer, the possibility should exist to discharge employees within a

relatively short period of time depending on the business results.

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4 Traditionally, the Central Bureau of Statistics (CBS) provides the relevant statistics through their

Labor Force Survey. However, CBS was preparing intensely for the Census that took place in March

and April 2011.

A dysfunctional employee may also hamper the company’s operation,

so in such cases too it should be possible for the employer to terminate

the work relation with such an employee.

The dismissal ordinance is not applicable to:

· employees of public corporations (civil servants, as well as laborers

and employees working for the government on labor contracts);

· educational personnel and teachers;

· clergymen (priests and ministers, for example);

· employees that perform domestic labor in private households (do-

mestic personnel);

· directors’ labor contracts;

· fixed-term labor contracts, except fixed-term contracts that are di-

rectly or indirectly preceded by a contract without a fixed term or

contracts in which the same worker has successively worked for dif-

ferent employers, who can reasonably be considered to be each

other’s successors with regard to the work performed; and

· in cases of bankruptcy.

In some other cases approval from the Directorate is not required, e.g.

dismissal “on the spot” (in case of theft, gross neglect of duties, drunk-

enness or debauchery during work by the employee), dismissal by mu-

tual consent, the expiring of a fixed-term labor contract, dismissal within

the trial period or dissolution of the labor contract by court.

As can be seen in table 1.4, a total of 128 collective requests for dis-

missal were made in 2010 involving a total of 319 employees. The Di-

rectorate approved 230 of these individual dismissal requests. These

employees lost their jobs. An additional 24 employees also lost their

jobs when they agreed to terminate the labor agreement without going

through the dismissal evaluation process (mutual consent). A total of

24 individual requests were declined by the Directorate.

The number of submitted requests for dismissal was higher in 2010

compared to the previous years. The number of employees involved in

the requests almost doubled compared to 2009 and the number of re-

quests consented was more than double the number in 2009. A total

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of 254 employees went through the evaluation process at the Direc-

torate and lost their job (requests consented and mutual consent) in

2010, compared to 114 in 20095.

Of all the requests submitted in 2010, 39 were for business/economic

reasons, involving 221 employees, of which 168 were approved by the

Directorate and 10 employees agreed to leave by mutual consent (com-

pared to 26 requests based on business/economic reasons, involving

86 employees, 48 of which were approved and 4 left by mutual consent

in 2009)6.

Table 1.4 Dismissal Requests

Dismissal Requests 2006 2007 2008 2009 2010

Number of requests submitted 97 96 88 94 128

Number of employees involved 310 470 350 162 319

in requests submitted

Number of requests approved 238 398 248 99 230

Number of requests declined 27 14 10 26 24

Mutual consents/request withdrawn 33 58 92 37 60

*mutual consents n.a. n.a. n.a. 15 24

*requests withdrawn n.a. n.a. n.a. 22 36

Source: Ministry of Social Affairs, Labor and Welfare

(the former Directorate of Labor Affairs, DirAZ)

Employment mediation and placementAccording to figures provided by the Ministry of Social Affairs, Labor and

Welfare (table 1.5), a total of 1203 persons applied for employment

mediation in 2010. This is significantly less than in 2009. It is moreover

remarkable that the number of new registrations has been decreasing

over the years, in line with the decrease in the unemployment rate.

The number of vacancies in 2010 decreased compared to 2009, and

so did the number of placements in these vacancies. Simple calcula-

tions reveal moreover that the ratio of placements per vacancy deteri-

orated in 2010 compared to 2009. In 2010, 35.9 percent of the

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5 Source: Ministry of Social Affairs, Labor and Welfare (former Directorate of Labor Affairs)6 Source: Ministry of Social Affairs, Labor and Welfare (former Directorate of Labor Affairs)

vacancies was filled by jobseekers registered at the Ministry of Social

Affairs, Labor and Welfare, while 40.6 percent of the vacancies was

filled in 2009. Over the past five years, the ratio of placements per va-

cancy was the highest in 2007, with 45.8 percent of vacancies filled by

jobseekers registered at the Ministry of Social Affairs, Labor and Wel-

fare.

Table 1.5 Mobility in the Search for Employment

Year New registrations Vacancies Placements Placement

per vacancy

2006 2,269 797 281 0.353

2007 1,658 633 290 0.458

2008 1,868 953 343 0.360

2009 1,568 652 265 0.406

2010 1,203 537 193 0.359

Source: Ministry of Social Affairs, Labor and Welfare (the former DWI)

Minimum wagePer September 1, 2008, the minimum wage had been set at NAF 7.30

per hour and was adapted again per 2011. Per January 1, 2011, the

minimum wage was indexed for inflation and has been set at NAF 7.53

per hour.

‘Rumbo pa trabou’ ProjectIt is the objective of the government to help as many people as possible

to enter the labor market. The tourism and construction sectors have

been identified as potential sectors to easily accommodate employees

on different levels, but especially on the less skilled level, which is the

bottleneck in Curaçao. Therefore, a project has been started to guide

potential employees into jobs in these two sectors. ‘Rumbo pa Trabou’,

which literally means ‘heading towards employment’ in Papiamentu (Cu-

raçao’s native language), is a project financed with SEI funding. The

project is planned to last for three years and cater to approximately 450

persons. Not only unemployed persons are eligible to participate, but

also people who are currently working but want to upgrade their

knowledge/competency. The program will focus on training and place-

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ment of people on the local labor market. Participants are guaranteed

a job after finishing the program and will be assisted during the first six

months of their new job.

OutlookCurrently, citizens are allowed to retire at the age of 60. At this age,

each legal citizen is entitled to a social pension (AOV). The amount of

the pension varies according to the number of years a person has been

in Curaçao during his/her adult life (from age 15 to 60)7. The pension

structure is based on a social system in which the active working pop-

ulation pays a premium according to their salary to support the fund

that pays the current retired population.

According to calculations from the Central Bureau of Statistics, Curaçao

is also facing the phenomenon of an aging population. The ratio of the

working age population over the number of citizens 60 years of age or

older has been decreasing and is expected to decrease further in the

future (table 1.6). Considering this expected development, the current

general pension fund system is unsustainable. Furthermore, it is

important to mention that some citizens depend totally on the govern-

ment pension at reaching the retirement age. Possibilities to alleviate

the problem with the pension fund are being discussed. A possible

decision is to increase the retirement age.

Table 1.6 Development of the Population

Age group 2005 2010 2020* 2030*

0-19 39,721 40,739 36,057 31,371

20-59 71,760 76,348 82,298 77,287

60+ 21,366 25,093 33,941 43,129

Total 132,847 142,180 152,296 151,787

Ratio 20-59 to 60+ 3.36 3.04 2.42 1.79

Source: Central Bureau of Statistics Curaçao (www.cbs.an)

* Forecasted figures

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7 For each year the person spends abroad, the pension is reduced. The reduction varies over time.

According to information from the SVB, the entity charged with the general pension fund (AOV),

over the period of September 1, 1960 to January 1, 1975 a reduction of 2 percent per year would

apply. Over the period of January 1, 1975 to January 1, 1991, a reduction of 2 1/8 percent per

year would apply. Per January 1, 1991, a reduction of 2 2/9 percent applies.

Considering the pool of unemployed and in an effort to stimulate

among locals, a new act has been proposed to the Executive Council.

This proposal sets a quota on the number of foreigners working in the

firms in Curaçao. A ratio of 1 foreigner per 5 locals (20% foreigners and

80% locals) in each firm has been proposed. In the proposal, locals are

defined as persons born in Curaçao or whose mother or father, with

Dutch citizenship, was born in Curaçao, or persons born on one of the

other islands of the former Netherlands Antilles and living in Curaçao

by October 10, 2010.

The proposal has been approved by the Council and is awaiting legisla-

tion. It can be expected that some businesses will have difficulty to with

this act.

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1.4 Public Finances

IntroductionThe year 2010 marked a transition year for Curaçao and the public

finances of Curaçao. On October 10, 2010, Curaçao became an

autonomous country within the Dutch Kingdom and the two govern-

ment levels (the government of the Netherlands Antilles and of the

Territory Curaçao) were merged into one for the government of Curaçao,

including the civil servants and ongoing projects.

Preliminary figures on actual revenues and expenditures up to October

10, 2010 indicate a surplus for the treasury of the Island Territory of

Curaçao. The differences between the budgeted and actual amounts

will be analyzed based on the financial report of the Government of the

Island Territory of Curaçao. In addition, the debt position at the end of

2010 and the future fiscal policy will be discussed.

Financial ReportTable 1.7 provides an overview of the revenues and expenditures for

2010, up to October 10. All actual figures included in the financial report

are on cash basis and all projected figures are on transaction basis. The

projection of the revenues and expenditures were based on a forecasted

economic growth of 1.5 percent in 2010, while a lower growth rate has

been registered. Nevertheless, the actual revenues turned out slightly

higher than budgeted while total expenditures turned out lower than

budgeted. A total of NAF 908.9 million was budgeted in revenues, whereas

actual revenues amounted to NAF 911.4 million. Total expenditures were

estimated at NAF 893.4 million but only a total of NAF 879.1 was actually

spent. This resulted in an operational balance of NAF 32.3 million, higher

than the NAF 15.5 initially estimated.

The slight increase in revenues is owed to improved profit-tax revenues,

but disappointing non-tax revenues compared to the amounts initially

budgeted. Up to October 10, 2010, the government collected NAF 193

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million in profit tax, which is NAF 25.6 million more than the amount

initially estimated. This improvement in the amount collected in profit

tax indicates a fortunate 2009, especially for local businesses, but also

improved compliance to remittance.

Up to October 10, 2010, non-tax revenues amounted to NAF 152.1

million, which is more than NAF 30 million lower than estimated. The

disappointing items were the dividends and other income from govern-

ment-owned limited liability companies.

With regard to the expenditures, mainly the lower expenditures on per-

sonnel costs, goods and services and interest payments contributed to

the lower than estimated total expenditures, as can be seen in the

table. The lower expenditure on personnel costs is partly because the

amount to be paid in wages, especially to teachers, was overestimated.

Moreover, the payments to the pension fund of public employees

(APNA) lagged behind the amount initially estimated due to payments

in connection with early retirements. It is expected that APNA will charge

these costs in a later stage.

With regard to the goods and services, there was less money spent on

temporary personnel and housing. Consultancy costs were invoiced for

less than budgeted, but more invoices over this period are expected in

a later stage. On the other hand, the amount spent on medical costs

turned out higher than the amount budgeted. It is important to mention

that medical costs is the largest category of goods and services and

consists mainly of medical costs of pro-pauper patients and civil

servants. Medical costs were underestimated because of pending

measures with regard to the costs of medication. However because the

measures were not executed, the expected reduction in costs of

medication was not effectuated.

Interest payments were NAF 3.5 million lower than estimated because

of payments received from the Netherlands in connection with the debt-

relief program.

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Table 1.7 Financial Report for the Island Government of Curaçao, January 1

to October 10, 2010 (in millions NAF)

Projection Actual

Total Revenues 908.9 911.4

Tax revenues

Profit tax 167.4 193.0

Wage tax 382.2 392.9

Income tax 0.7 3.0

Taxes on property 23.2 22.0

Taxes on goods and services, including road tax 57.2 71.5

Other taxes 19.4 11.2

Non-tax revenues 186.1 152.1

Capital revenues 0.8 0.0

Grants 72.0 65.7

Total Expenditures 893.4 879.1

Personnel costs 303.0 295.6

Goods and services 288.0 278.6

Subsidies, including to public companies 38.2 43.5

Transfers 151.1 152.2

Interest payments 105.9 102.4

Capital expenditures 6.9 6.9

Operational Balance 15.5 32.3

Source: Ministry of Finance

Debt positionDuring the preparations towards getting the new constitutional status,

it was agreed between the government of the former Netherlands

Antilles and the Netherlands that the country of the Netherlands

Antilles (including the individual islands) would receive debt relief. This

debt relief is a partial debt forgiveness combined with a slowing down

of debt accumulation. The Netherlands took over an amount of

outstanding loans and future accumulation of debt has been restricted

by the Cft.

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Figures received from the Ministry of Finance indicate that Curaçao’s

debt position was approximately NAF 2,190 million per October 10,

2010.

Fiscal PolicyIn order to remain competitive compared to other countries in the

region and other countries of the Kingdom in terms of business climate,

an adjustment of the fiscal policy has been prepared. The basis of this

plan was a shift from direct to indirect taxation. It is imperative for this

shift to remain neutral for the government budget. That requires that

the shift should not decrease the government revenues. This plan was

proposed to the Council and has been approved.

The proposed adjustments are:

· A decrease of the profit-tax tariff from 34.5 to 27.5 percent;

· A decrease of the wage and income-tax burden according to table

1.8, accompanied by an increase of the rebate to NAF 1,700;

· An increase of the turnover tax from 5 to 6 percent;

· A decrease of the excise duty on gasoline and Low Sulfur Diesel of

NAF 15.75 and NAF 8.50 respectively per 100 liter in 2012.

Table 1.8 Current and proposed wage and income taxation

Current Proposed

Income Tariff Income Tariff

up to NAF in % up to NAF in %

26,601 13.0 27,200 12.0

39,902 20.8 41,000 20.0

55,419 27.3 57,000 27.0

83,128 35.1 85,600 33.0

117,487 41.6 121,000 40.0

Higher 49.4 Higher 49.0

Source: Ministry of Finance

These adjustments will be accompanied by measures to increase the

compliance with tax remittance by businesses.

The budget neutrality is realistic, based on the fact that a reduction in

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profit and income tax will lead to increased expenditures by households

and businesses while the increased turnover tax will mitigate the spen d-

ing pattern. Based on calculations made by the Ministry of Economic

Development, the proposed fiscal policy will have a positive economic

effect.

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1.5 Monetary Developments in Curaçao

Introduction8

The new constitutional relations within the Dutch Kingdom became

effective on October 10, 2010. In this respect, the Netherlands Antilles

was dismantled and the islands that were parts of this constitutional struc-

ture obtained a new status. Curaçao and St. Maarten became auton-

omous countries within the Dutch Kingdom while Bonaire, St. Eustatius

and Saba opted for direct ties with the Netherlands.

The new constitutional setting had its effects on the monetary policy

framework. As of October 10, 2010, Curaçao and St. Maarten formed

a monetary union with a common currency and a common central

bank. The common central bank is the Central Bank of Curaçao and

St. Maarten, which is the legal successor of the former Central Bank of

the Netherlands Antilles. For the time being, the Netherlands Antilles

guilder will remain legal tender in both Curaçao and St. Maarten.

A monetary union with one common currency and one central bank

requires a synchronized monetary policy and budget policy, sound

finances and uniform legislation. Therefore, close policy coordination

between Curaçao and St. Maarten is a precondition for the monetary

union between Curaçao and St. Maarten.

The main objectives of the new monetary authority, the Central Bank

of Curaçao and St. Maarten, are:

· to promote a stable external value of the legal currency of Curaçao

and St. Maarten;

· to promote a sound financial system in Curaçao and St. Maarten;

and

· to promote safe and efficient money transfer in the monetary union.

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8 Source: Press Release 2010-010, Central Bank of Curaçao and St. Maarten, 2010

To realize the abovementioned objectives, the Central Bank of Curaçao

and St. Maarten (hereafter: the Central bank) is in charge of among

other things:

· safeguarding the soundness of the financial system;

· managing the foreign exchange reserves;

· formulating and implementing the monetary policy;

and advising the government on financial and economic matters.

Monetary developments in 20109

Monetary policyThe objective of the monetary policy is to safeguard the stability of the

external value of the Netherlands Antilles guilder at a fixed exchange

rate of NAF 1.79 for 1 USD. To preserve the confidence in the exchange

rate, the Central Bank aims at maintaining a level of official reserves

(excluding gold) worth three months of merchandise imports. Conse-

quently, the developments in the aggregate money supply, the private

credit extension and the foreign asset position of all commercial banks

are the most important indicators for the Central Bank in considering

policy adjustments.

The Central Bank’s most important instruments to conduct monetary

policy are the reserve requirement on the domestic liabilities, combined

with a bi-weekly tender system of Certificates of Deposit (CDs) and the

requirement of a positive Net Foreign Assets position of all commercial

banks. These monetary instruments influence the domestic money

market.

In 2010, the Central Bank conducted a passive monetary policy as a

consequence of the extra liquidity in the domestic money market and

a slowdown in economic activities in that year. The surplus of liquidity

in the domestic money market during 2010 was mainly attributed to

the inflow of debt relief funds by the Dutch government and the risk

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9 Source: Quarterly Bulletin, Central Bank of Curaçao and St. Maarten, 2010

aversion of investors10. Under normal conditions, a surplus of liquidity

in the domestic money market will lead to excessive credit expansion

by commercial banks. However, the slowdown in economic activities

impeded an excessive credit expansion by the commercial banks. Con-

sequently, the official reserves exceeded the adequate level and the

domestic credit expansion remained at an adequate level.

Based on the abovementioned developments in the domestic money

market, the Central Bank deployed only one of the monetary instru-

ments, in this case the reserve requirement combined with a bi-weekly

tender system of CDs. During 2010, the Central Bank lowered the per-

centage of the reserve requirement by 2.5 percent, reaching a percent-

age of 7.75 percent in December 2010. In addition, the Central Bank

offered only the amount of maturing CDs at the biweekly auctions, im-

plying that no extra CDs were offered in 2010.

Monetary indicators11

The aggregate money supply decreased by NAF 241.7 million (3.2%) in

2010. This was attributable to a substantial drop in net domestic assets

(36.2%) mitigated by an increase in net foreign assets.

The significant decline in net domestic assets can be ascribed to the

decrease in the domestic assets (debt) of the government as a conse-

quence of the implementation of the debt relief program, through which

the Dutch government acquired the outstanding government paper of

the former central government.

Net foreign assets12 improved by NAF 582.6 million (18.0%) in 2010 as

a result of the increase in the official reserves. The increase in the

official reserves was mostly due to the transfer of dividend tax by the

Netherlands related to the Kingdom tax arrangement (BRK).

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10 Investors prefer to keep their funds domestically as a result of the risks of international securities

markets.11 Due to the constitutional changes per October 10, 2010, the figures of the last quarter of 2010 do

not lend themselves to a comparison with the figures of the previous year. Therefore, the figures

of the last quarter have been excluded from the comparison with the figures of year 2009.12 The net foreign assets comprise the official reserves and the commercial banks’ net foreign as-

sets.

This dividend tax is from subsidiaries of Dutch companies on the island.

The central bank’s net foreign assets increased by 21 percent and the

net foreign assets of commercial banks increased by 11.5 percent.

Developments in domestic interest ratesThe Official lending rate of the Central Bank remained unchanged

at 1.00 percent in 2010. During 2010, interest rates related to the

treasury papers and government bonds increased slightly.

The interest rates of the domestic commercial banks, with the exception

of the average interest rate on current-account overdrafts, declined

further during 2010. The average interest rate on mortgages dropped

to 6.69 percent. In addition, the average interest rate on passbook

savings and 12- month time deposit declined to 1.11 and 1.65 percent

respectively.

OutlookThe Central Bank’s monetary policy will remain directed at the promo-

tion of a stable external value of the Netherlands Antilles guilder. In this

regard, the monetary policy will also be a common policy supported by

Curaçao and St. Maarten.

In the first half of 2011, for instance, the Central Bank saw a strong

decrease in foreign reserves. Despite this decrease, the reserves

remained well above the norm of at least three months’ worth of

imports. However, to prevent further decreases to dangerous levels that

could put pressure on the Netherlands Antilles guilder, the Central Bank

increased the reserve requirement for commercial banks from 7.75 to

9.75 percent.

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1.6 Balance of Payments

Curaçao’s Balance of Payments in 2010Table 1.9 shows the Balance of Payments (BOP) developments for Cu-

raçao from 2007 to 201013. As per October 10, 2010, the Central Bank

of Curaçao and St. Maarten compiled and published a separate BOP

for Curaçao. The figures presented in table 1.9 are therefore related to

Curaçao, contrary to the figures presented in the previous editions of

the Curaçao Economic Outlook. Nevertheless, if necessary, develop-

ments particular to other Caribbean part of the Dutch Kingdom will be

mentioned.

Table 1.9 Curaçao’s Balance of Payments

Millions NAF 2007 2008 2009 2010**

Current Account -975.3 -1,336.4 -859.3 -1,633.4

Trade Balance -2,030.9 -2,178.3 -1,901.6 -2,181.9

Service Balance 900.7 768.3 703.2 446.2

Income Balance 88.7 -12.5 -86.5 -19.1

Current Transfers 66.2 86.1 425.6 121.4

Capital Transfers 32.2 44.3 40.7 51.4

External financing 728.2 1,242.6 410.5 1,030.1

of the private sector

Direct investments 202.3 264.6 89.3 133.1

Loans and credits 697.9 1,013.1 435.4 1,513.7

Portfolio investments* -172 -35.1 -114.2 -616.7

Change in reserves* 5.8 -45.9 324.3 382.4

** Preliminary figures

* Negative numbers indicate an increase

Data are derived from the statistics of the Central Bank of Curaçao

and St. Maarten

Compared to the last three years, Curaçao’s balance of payments’ cur-

rent-account deteriorated significantly during 2010, reaching a deficit

of NAF 1,633.4 million (30% of GDP). Curaçao has, as do other islands

in the Caribbean area, a small scale and open economy which is to a

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13 Preliminary figures

large extent dependent on imported goods, which is generally reflected

in a deficit in the current account balance.

The current account’s deterioration was due mainly to the worsening

of the trade balance, service balance and lower current transfers re-

ceived from abroad. According to the developments on the current ac-

count, the capital and financial account worsened in 2010.

Current accountDevelopments in the trade and service balance will usually determine

developments in the current account. These are basically the main com-

ponents and have a significant effect on the current account. In con-

trast with the traditional surplus on the service balance, the trade

balance of Curaçao has been deteriorating continuously due to increas-

ing imports over exports. Compared to 2007, the trade balance deficit

expanded reaching 40 percent of the GDP in 2010.

Both the import and export of merchandise grew slightly in 2010 com-

pared to 2009. The higher import is related to higher commodities im-

port bills, surging demand for imported goods driven by tourism

spending, increased domestic spending and imports from e-zone com-

panies to stock up inventory. In 2010, the import of goods was valued

at NAF 3,404.6 million, up 10 percent from NAF 3,109.8 million in

2009. The higher export of goods can be ascribed to, among other

things, higher income received from bunkering activities at the airport.

Compared to 2009, the service balance earnings received from the ex-

port of services shrank by 10 percent in 2010, mainly as a conse-

quence of the 56-percent decline in the refining fee. The lower refining

fee was a result of the shutdown of the Isla refinery due to power fail-

ures at the Build Own and Operate (BOO) power plant from March 2010

up to December. Contrary to the decline in the refining fee, revenues

from the tourism sector rose slightly (7%) in 2010 compared to 2009.

While overall stay-over arrivals declined by 6.8 percent, stay-over nights

grew by 5 percent reflecting the higher average spending in 2010 com-

pared to 2009.

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Furthermore, the income balance improved slightly in contrast to the cur-

rent transfers balance, which deteriorated by more than NAF 300 million

due to less debt relief grants transferred by the Dutch government.

Capital and Financial AccountIn 2010, capital transfer increased by NAF 10.7 million. This increase

is related to an increased capital inflow received from Dutch govern-

ment development aid.

The deterioration of the current account deficit in 2010 as compared

to the year before resulted in a drop in the net foreign wealth of the pri-

vate sector. The change in the financing of the private sector was due to

a deterioration of the direct investments balance (NAF 133.1 million) and

the loans and credits balance (NAF 1,513.7 million), partially mitigated by

the improvement in the portfolio investment balance (NAF 616.7 million,

see table 1.9). The worsening of the direct investment balance is due to

increased foreign direct investments in Curaçao. Regarding the loans and

credits balance, the net trade credit balance worsened because trade

credits received on imports exceeded repayments on trade credits.

Foreign Currency Reserve in 2010Deterioration of the current account resulted in a decline of NAF 433.1

million in net foreign assets held by the commercial banks, which was

offset by NAF 50.7 million in net foreign assets held by the central bank.

Balance of Payments in 2011For 2011, it is expected that the current account deficit will stay at

approximately the same level as in 2010. The expected slower

economic activities, in the construction sector for instance, is expected

to partially offset the higher import expenses, reflecting both fluctuating

commodities prices on the international market as well as the increase

in the volume of imported goods related to the expected growth in

tourism14 and private spending.

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14 In the first quarter of 2011 stay over arrivals to Curaçao grew by 16 percent compared to the same

period in 2010.

Furthermore, the service balance surplus is expected to grow slightly

as a result of the expected growth of the export of services and the con-

tinuation of the activities of the Isla Refinery.

Regarding exports of goods, a small decrease in volume is expected,

driven by lower demand due to the expected economic performance of

the main trading partners.

Furthermore, capital inflow related to Dutch development aid funds is

expected, resulting partially in upward pressure on the foreign reserves.

Considering the investments in the tourism sector (Tourism Master Plan

2010-2014), the direct investment balance is expected to worsen in

2011. The loans and credits balance is expected to worsen in 2011

due to, among other things, a decline in net trade credits.

Sources:

Quarterly Bulletin 2010-III, Bank of Curaçao and St. Maarten

Statistical tables, Balance of Payments Curaçao, Bank of Curaçao and

St. Maarten

Strategic Tourism Master plan for the Island of Curaçao 2010 – 2014,

December 2009

Historic Overview, Stay-over Arrivals, Curaçao Tourist Board, July 2011

Overview , Visitor Nights Overview, Curaçao Tourist Board, July 2011

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1.7 SEI Program

IntroductionThe long-term objective of the Social Economic Initiative (SEI) program

is to provide Curaçao with a sustainably improved social and economic

perspective by creating:

· A sound government finance;

· A reformed economic structure;

· A reorganized public administration;

· An investment program; and

· A social safety net.

After a slow start in drafting and submitting financial proposals by

project owners in 2008, a sharp increase was seen in 2009 and 2010,

in proposals being submitted to USONA for review, approval and signing

of the financial agreements. Very ambitious goals were set at the start

of this process, as the government believed that it was possible to have

all the project proposals drafted and submitted to USONA by November

2009. Later this target date was extended to June 2010 and more pro-

longations followed. During this period, some critics identified some

serious hurdles in reaching this ambitious goal, e.g. capacity issues,

different priorities and limited number of contractors for the infrastruc-

tural projects.

In the final report on the progress of the SEI projects for 2010, USONA

was positive with regard to the number of project proposals being

signed into financial agreements. The execution of the SEI program

reached its peak during the last quarter of 2010, particularly in Decem-

ber, as December 31 was set as deadline to commit to the budget by

awarding the project to a consultancy firm/contractor for execution. The

result was an approval of 97 percent of the SEI fund in projects.

In the annual consultation round held at the end of 2010, it was decided

that an addendum would be attached to the proposal of May 23, 2008

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that expired on December 31, 2010. This consultation round resulted

in an agreement in January 2011 between the government of Curaçao

and the Dutch government to guarantee spending of the total budget

and a new deadline to commit the projects. Three objectives were

agreed on:

1. All development aid will be terminated by 2012.

2. Projects and reforms important to reach SEI objectives that had en-

countered delays will be addressed with high priority

3. The future of the oil refinery must be analyzed in accordance with

an agreed planning.

The new deadline to commit all resources for the pending projects had

been set on September 30, 2011. The expected result was that all pro-

jects on the Ministry of Economic Development’s list would be commit-

ted. Reaching this goal is very important to avoid underspending of the

SEI funds.

The following section gives an overview of the status of selected

projects submitted to USONA by the former Island Territory of Curaçao,

now the government of Curaçao. The focus will be on economic and in-

frastructural projects.

Status of selected economic and infrastructural SEI projects15During the period of 2008 to 2010, there were a total of 110 projects for

which an agreement has been signed between the government of Cu-

raçao and the government of the Netherlands through USONA. Of these

110 projects, 33 belong to the economic sector of the government. The

remaining projects belong to the educational and social sector.

The contribution of the Dutch government to these 110 projects has

been estimated at NAF 121 million. A total of 85 projects have been

committed by USONA, for an amount of NAF 118.5 million.

The government of Curaçao contributes with NAF 68,664,831 to 13

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15 Source: PMU Progress Report, March 2011; USONA Progress Report, December 2010.

projects, seven of which are economic projects. These seven projects

are mentioned below in table 1.10.

Table 1.10 The Contribution of the Local Government in the Economic

SEI Projects

Project Contribution of the

of Curaçao

Curaçao Economic Development Board 1,100,000

Klein Hofje 19,070,000

Tourism Marketing Plan 15,300,000

Hospitality Training for the Unemployed 2,274,725

Upgrading of the EEG weg 2,350,000

Renovation of Urban Area Sewerage 2,164,500

Signposts 3,545,000

Total 45,804,225

The ministry of Economic Development has identified a few projects

based on their major macroeconomic impact, by means of the size of

the investment and the proposed measures intended to improve the

economic performance and structure.

These projects are “Small and Medium Entrepreneurship” (SME), up-

date of the business establishment policy, “Red Tape”16, Competition

Policy, Long-Term Economic Policy, infrastructural projects, “Research

on Dutch and European Subsidy Arrangements” and the “Tourism Mar-

keting Plan”.

Small and Medium EntrepreneurshipNAF 100,000 has been reserved to prepare an SME policy. Although

by the end of 2010 not much progress had been registered, the pace

was increased in 2011 and, at the moment this publication is being

prepared, the policy is ready to be implemented.

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16 Additional information about the “SME policy”, the update of the establishment policy and

“Red Tape” is found in chapter 3 of this publication

Update of the business establishment policyAn amount of NAF 150,000 has been reserved for this project. The

policy is being prepared in order for the implementation to start by

January 2012. Considering the importance of this policy for the island,

the project is being closely monitored by USONA.

Red TapeAn amount of NAF 90,000 has been reserved for this project. Up to

December 31, 2010, this amount had not been drawn on. The financial

agreement with USONA was signed in March 2011, and at the moment

of preparing this publication the project has been committed and

tendered and ready to be executed.

Competition PolicyAlthough the budgeted amount of NAF 750,000 had not been touched

yet by the end of 2010, the project is in full execution and in its last

phase. It is expected that the policy will be ready by the beginning of

2012. This project also gets extra attention from USONA, considering

the expected impact.

Long-term Economic PolicyAn amount of NAF 1,000,000 has been reserved for the preparation of

a long-term economic policy. Because of the delay in the preparations,

this project is being intensively monitored by USONA. The execution of

the project has been entrusted to the Ministry of General Affairs. At the

time of this writing, the project is about to be committed.

Infrastructural ProjectsThe selected projects are “Weg naar Fuik” (the Road to Fuik), “Weg naar

Rondeklip” (the Road to Rondeklip), Caracasbaaiweg, signposts,

upgrading of the EEG weg, improvement of the Rif area, renovation of

the sewage system in the urban area and Piscadera. Several of these

infrastructural projects have been undergoing scrutiny due to proce-

dural errors that were detected.

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All these bottlenecks that had to be addressed contributed to delays in

execution, which, for a number of the projects, has started in 2011.

Research on Dutch and European subsidy arrangementsThe development aid to Curaçao from the Netherlands is running down

and it is unclear whether there will be any sequel to the 10th European

Development Fund. The government of Curaçao wants to search for

other subsidy arrangements for public and private initiatives on the

island. An amount of NAF 150,000 has been reserved for research on

subsidy-fund options. Phase one, which is the research phase, will be

finished by the beginning of December 2011. The results of the

research phase will determine the course of phase two.

Tourism Marketing PlanAn amount of NAF 24,300,000 was earmarked for the Tourism Market-

ing Plan. The marketing plan was completed in July of 2010.

New Agreements After 2010An agreement had been signed between the governments of the

Netherlands and Curaçao with the following focal points:

· All pending projects, including three economic projects, had to be

committed/awarded to a contractor by September 30, 2011 at the

latest.

· In the new government departments, project coordinators were

assigned to guaranty that progress/sense of urgency is maintained.

Red flags were raised for projects that would need extra project/

process management.

· A Program Mandate Unit was established with a far-reaching man-

date to give direct instructions to project owners with regard to the

execution of the projects.

At the moment, negotiations are being prepared for another deadline to

commit projects, because some projects have not been committed yet.

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2.1 PRODUCTION SECTORS

2.1.1. Agriculture, Livestock andFisheries

Introduction The Agriculture, Livestock and Fisheries sector’s contribution to the

GDP is small.

Compared to previous years, the figures do not show many new devel-

opments. Approximately 92 percent of food products in Curaçao is im-

ported, while the rest, like cucumbers, sweet potatoes, bell peppers,

pumpkin, West-Indian gherkin and okra, is produced domestically. The

main reason for this high level of imports is that the climate does not

allow for favorable production factors without high production costs (e.g.

high price for water and electricity). Local producers can therefore

barely make a significant profit in this sector.

International Developments and TrendsMost of the fruit and vegetable imports come from the US. In 2010,

that country faced a relatively bad crop season because of the long win-

ter. This development had a negative impact on a large section of the

export-ready food supply, which led to higher prices. Moreover, in-

creases in food prices are a global trend that has been discussed ex-

tensively by the UN, among others.

The FAO’s food index, a measure of food prices, averaged 232 points

in May—37 percent above its level the same time a year earlier. While

the index was down slightly from a revised figure of 235 points in April,

it was still only six points off the record hit in February17.

Since the last quarter of 2010, international developments have played

a big role in the Food Price Index; not only the weather and climate but

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17 Source: Food and Agriculture Organization of the United Nations: www.fao.org

also oil prices, due to the unrest in North Africa, have been impacting

global food prices negatively.

Bad crops also led to cost increases for livestock farmers. The prices

for meat and dairy products suffer from the same impact mentioned

above. The FAO also mentions that pork and poultry prices are rising

steadily to an all-time high due to an imbalance between supply and

demand. An increase in supply takes 2 to 3 years, so the upward trend

in prices should be expected to continue for the coming years.

The global overfishing trend continues to be a big problem for the food

security sector. The EU has set quotas for fishing vessels, but progress

is slow and the EU is not receiving accurate data from the member

states. This makes it difficult to describe the situation accurately.

According to EU fisheries Chief Maria Damanaki18, there could be a well-

enforced system in place by 2015, if all member states cooperate.

Regionally (the Caribbean), there is an added threat to the waters: the

lionfish population has exploded since the first ones were spotted in

2009 off the coast of the US. The lionfish is not native to the Atlantic

and the Caribbean Sea and has no natural enemies. As a result, young

coral fish do not stand a chance against the lionfish. If no action is

taken, the islands in the Caribbean will suffer economically from an

explosion of the lionfish population, both directly—no fish left over for

fishermen—and indirectly, since coral reefs will be affected negatively

and the clear blue Caribbean waters will turn foggy from the dead coral,

which will have a huge impact on tourism.

Development in CuraçaoIn the second half of 2010 and the first quarter of 2011, Curaçao was

confronted with an abnormally high level of rainfall. This brought about

75 percent of the local agricultural sector to its knees. The most com-

mon fruits and vegetables grown on the island were not available

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18 Interview Business Week May 25, 2011, there could be a well-enforced system in place by 2015,

if all member states cooperate.

anymore and needed to be imported, which usually means higher

prices. This continued into 2011 up until March. The rainfall gave a

chance to other, lately less common, crops (e.g. soursop, caju) to flour-

ish, but not in enough quantities to be sold to the public. Moreover,

most of these were grown in private household yards.

The lessons learned from 2010 are carried into 2011, so farmers are

better prepared for unusual weather conditions.

There are several private initiatives to grow crops in greenhouses to com-

bat the high prices of imported fruits and vegetables. These initiatives are

still in their pilot phases, so it is difficult to predict their success. If these

projects do turn out to be successful, the number of greenhouses will have

to be increased and strategically placed throughout the island. It will take

a couple of years to measure the success rate.

The Ministry of Public Health, Environment and Nature is also working

on a number of policies to decrease overproduction of certain products,

like bell peppers, and work on a more varied supply. There are also pro-

posals to lower taxes on imported fruits and vegetables and raise taxes

on less healthy products. This is more from a healthcare point of view,

but is expected to have a positive long-term effect on economic devel-

opment.

The very small livestock sector did not experience many developments

in 2010 compared to 2009. One significant change which could have

an impact on public health was in the procedure for slaughtering. The

new procedure might make it less attractive for farmers/individuals to

have a professional handle the slaughtering in a clean and sterile envi-

ronment. The Ministry of Public Health, the Environment and Nature is

trying to adjust the procedures so that public health will not be affected.

The local fish industry has been suffering from over-fishing for years

now, and the rapid growth of the lionfish population makes the situation

even worse. The Ministry of Public Health, Environment and Nature had

a number of special harpoons made so volunteers (mostly professional

divers) can hunt this predator down.

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The Ministry is also working on policies to designate certain areas as

”no fishing zones” around the island in an effort to combat over-fishing

and also to try to attract back the grouper, which is the only known fish

that preys on the lionfish. There have also been private initiatives to

hunt the lionfish on a daily basis.

The former Agriculture, Livestock and Fisheries department imple-

mented a ban on certain fish traps and fishing techniques. The fishing

of the ‘mustang’ is also illegal without a permit. This is a measure to

control the population and prevent (regional) extinction. It is safe to say

that more measures will be taken to protect the waters around Curaçao

against both man and nature.

With regard to the high production costs, studies are being undertaken

on the possibility of using cold-water pipes in agriculture. The cold water

going through the pipe generates moisture around it, providing the soil

with the necessary humidity for agriculture. The quantity, quality and

variety of local agricultural products could improve by using this tech-

nique.

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2.1.2 Oil Sector

International developments in 2010The prices of crude oil on the international market moved with great

volatility during 2010. Prices fluctuated within the range of $74 to $90

per barrel. As can be seen in figure 2.1, the price dropped slightly in

February, increased during the following two months, then dropped

again in May, remaining relatively stable during the next four months,

to increase again in October, reaching $90 per barrel at the end of De-

cember 2010. During the last quarter of 2010, the price of crude oil on

the international market remained constantly above $80 per barrel.

Figure 2.1. International crude-oil price development, 201019

Source: WTI (West Texas Intermediate)

One of the factors that contributed to the rising trend of the prices of

crude oil on the international market during 2010 was the optimism re-

garding a strong recovery of the world economy. This helped drive the

prices of crude oil upward on the international market. Macro-economic

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19 Source: Energy Information Administration (Spot price FOB by estimated export volume)

0

10

20

30

40

50

60

70

80

90

100

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Month

$ pe

r bar

rel

growth indicators from China and India were fabulous, whereas growth

rates for the Euro-zone and the USA were respectively disappointing

and fragile. The Energy Information Administration (EIA) stated20 that

China has overtaken the US as the largest consumer of energy. Auto-

mobile sales in China surpassed the world’s biggest auto market, the

US, for the first time.

Furthermore, due to the escalating debt crisis in the Euro-zone, several

investors sought refuge in the oil and financial markets, driving up oil

prices. Investors and economists feared that Greece’s public-finance

problems would spill over to Spain, Portugal and Germany.

Moreover, the escalating political tensions in Iran, Nigeria and Iraq, com-

bined with fears concerning oil disruptions, pushed the prices of crude oil

and distillates upward.

Also the fact that many countries of the Northern Hemisphere experi-

enced exceptionally cold weather during January and February 2010,

leading to a high demand for crude oil during the winter period, helped

drive up the prices during these months. However, according to the Or-

ganization of Petroleum Exporting Countries (OPEC), the inventories of

crude oil and distillates were sufficient to deal with the winter demand.

OPEC assures that the high oil prices on the international market should

be attributed to speculation. Analysis from Nymex figures21 indicates

that the number of oil speculators has risen in recent years. Oil in-

vestors were optimistic, believing that crude oil would get more expen-

sive during 2010. Consequently, the price of crude oil on the

inter national market was influenced by the oil speculators.

The world was shocked by the Deepwater Horizon spill in the Gulf of

Mexico, which could be categorized as an ecological disaster. As known,

the Deepwater Horizon spill will have a long-lasting impact on the envi-

ronment, as water, marine fauna and wildlife have been contaminated.

The Deepwater Horizon event can without any doubt be considered the

worst offshore spill in US history. Despite this, it had little direct impact

on the world oil market22.

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20 July 201021 Source: http://www.cba.ca/news/business/story/201022 Source: http:// June 18, 2010

International developments in 2011Both EIA and OPEC were optimistic about the recovery of the world

economy in 2011. Both organizations were convinced that in 2011 the

world economy would show a slightly positive growth but were uncertain

about the pace of the world’s economic recovery. Several economists

anticipated that in 2011 the OECD economies would have face the

dilemma of introducing austerity measures in most of the economies

at a time of continued low growth23 , while the government of developing

countries such as China, India and Brazil would probably have taken

actions to avoid overheating of their economies.

According to EIA24 , the demand for crude oil and distillates in the near

future will increase and consequently push up prices on the interna-

tional market.

In 2011, the price for crude oil fluctuated within the range of $85 to $110

per barrel. The price continued to increase, reaching $110 in April,

dropped to $86 in October to increase to $97 a barrel in November25.

The Curaçao refinery in 2010The oil sector can be considered as an important pillar of the local

economy. There are approximately 1000 people directly employed at the

oil refinery. Besides these, there are between 300 and 500 jobs created

through maintenance work done by private contractors. The harbor and

the refinery are, furthermore, interrelated. So a shutdown of the oil refinery

implies little activity or income for the harbor. Moreover, the Isla Refinery’s

contribution to GDP was estimated at approximately 8.5 percent over the

period of 2006 to 200926 and the government receives almost NAF 400

million per year in fixed income from refinery fees.

The Isla refinery, owned by the Refineria di Korosu (RdK), has a maxi-

mum production capacity of 320,000 barrels per day. The refinery is

able to process a variety of crudes ranging form light to heavy and from

various sources.

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23 Source: OPEC Monthly Oil Report December 201024 Energy Information Administration25 Source: http://www.economagic.com/em-cgi/data.exe/var/west-texas-crude-long26 Source: Ministry of Economic Development (MEO),

The oil refinery is being operated by Petroleos de Venezuela (PdVSA)

on a lease contract between PdVSA and RdK that expires in 2019.

Environmental activists are currently putting tremendous pressure on

the Isla refinery to operate in conformance with the environmental

nuisance permit. Because of this, there is currently some uncertainty

regarding the refinery’s future. The ‘Schoon Milieu Op Curaçao’ (SMOC)

foundation strives to achieve a reduction in the pollution caused by the

Isla refinery and supports the idea to shut it down if the aforementioned

cannot be attained. On the other hand, some other organizations and

individuals are convinced of the added value of the Isla refinery to the

local economy and that efforts should be made to maintain the

refinery’s operations. Another option being considered is to move the

Isla refinery to another location on the island. The government has

appointed an international agency to map the future vision of the Isla

refinery.

The Build Own and Operate (BOO) energy plant was built in 2003 and its

primary aim was to produce electricity, steam, desalinated water and com-

pressed air for the Isla refinery and Aqualectra. The Isla refinery’s opera-

tions are fully dependent on the energy supplied by the BOO.

Unfortunately, due to malfunctions of equipment such as air compressors,

gas turbines and steam boilers, Curaçao Utilities Company, which

manages the BOO plant, has failed to supply the refinery with the

necessary level of utilities. This led to several outages at the refinery and

has hampered the refinery from reaching it desired production level.

The BOO’s malfunctioning is due to poor and untimely maintenance of

the equipment. In order to solve this problem, there is an urgent need

to invest in the BOO. Moreover, special attention should be given to the

timing and the sum needed to invest in the BOO to guarantee the oil

refinery’s operation.

The oil refinery restarted its operations in mid December 2010, and its

operating loss has been estimated at almost NAF 300 million27.

To meet the demand of both the local and foreign markets, the Isla

refinery was forced to import oil derivatives28 from abroad.

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27 Source: http://www.zakelijkcuracao.com: Strubbelingen bij weer opstarten van Isla raffinaderij 01-01-2011

28 Mogas 95, jet fuel, LPG-20 and LPG-100

At the moment of this writing, the official figures concerning the

imported and exported oil derivates have not yet been audited.

Developments in 20112011 is an interesting year for the oil refinery. The Isla Refinery is under

immense pressure at the moment due to the need for significant

investments to upgrade, maintain and replace installations, to be able to

deliver products that meet the more stringent specifications in the

marketplace and at the same time compete adequately with oil refineries

in the region and the American Gulf Coast. As mentioned earlier, environ-

mental pressure is mounting on the refinery to reduce its emissions to

levels in accordance with the nuisance permit.

Distribution (Curoil N.V.) in 2010Curoil N.V. is a 100 percent state-owned enterprise and the sole

distributor of oil products on Curaçao and Bonaire, including oil

products for the Aqualectra and Ecopower production units. For strate-

gic reasons, Curoil operates four gas stations. Currently, Curoil N.V. is

largely dependent on the local oil refinery, which is the main supplier

of oil products for Curoil N.V.

Curoil’s fuel distribution consists of two main market segments, namely

the local market (including Bonaire) and the international market. The

local market consists of fuel supply for local transportation, commercial

users and utilities. The international market consists mainly of aviation

and (on- and offshore) bunkering.

With regard to the aviation market, jet fuel is sold mainly to commercial

airplanes that visit our island. However, there are some airlines making

technical stops for refueling. By the end of 2009, Valero terminated its

operation in Bonaire. At that point, Curoil N.V. took over its clientele,

which resulted in a significant market-share increase in aviation for

2010. Besides that, the year 2010 was also characterized by the

recruitment of several (cargo) airlines that use Curaçao or Bonaire as

their home or hub port for refueling.

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The results from bunkering activities in 2010 were severely affected by

the 9-month shutdown of the Isla Refinery in 2010. The shutdown of

the refinery resulted in a reduction of vessel traffic in the harbor and

consequently also in a drastic reduction of bunkering sales activities.

By December 2010, the refinery started up again and Curoil N.V.

expects to build up the bunkering business again in the year ahead.

Final sales-volume figures are not available to the public. However, table

2.1 provides an overview of the preliminary sales figures for 2010.

Table 2.1: Overview of Sales Volumes 2010 Compared to 2009

Market change

Local-Curaçao (excl. utilities) -3%

Bonaire (excl. utilities) +10%

Bunkering -24%

Aviation-Curaçao +2%

Aviation Bonaire +136%

Source: Curoil N.V.

Curoil N.V. encountered some financial liquidity problems in 2010, be-

cause the government entity that regulates local fuel prices had not ad-

justed these prices since April of 2010, despite the fact that oil prices had

increased substantially during that year29. Due to the aforementioned cir-

cumstance, 2010 can be considered as a challenging year for Curoil N.V.

According to Curoil N.V., despite the above-mentioned developments

they are still a fierce regional competitor based on:

· Curoil’s reputation as a reliable supplier that consistently delivers

quality oil derivatives;

· Its compliance with international standards (ISO 9001 and ISO-

8217);

· Its diversity of oil products that can be blended to the specific de-

mands of the customers;

· The availability of on- and off-shore services; and

· The fact that it offers all of the above at prices which are competitive

for the region.

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29 Per July 2011, the local fuel prices are being adjusted on a monthly basis.

Curoil’s limited storage capacity makes it still highly dependent on one

sole supplier for the major products, and this is something that can be

considered as a challenge.

It is worth mentioning that Curoil N.V. is working on expanding its storage

capacity by constructing more tanks. Recently, the members of the Board

of Supervisory Directors gave their approval for the continuation of the

construction plans.

Curoil N.V.’s management is aware of the importance of an interna-

tional presence and globalization, and is looking into possibilities to

expand its market share accordingly through strategic alliances with

other players in the international market. Specific actions are being

taken to achieve this objective.

Prospects for the near futureThe expectations for the near future are excellent. Since July 2011, local

fuel prices are being adjusted on a monthly basis. Furthermore, Curoil

has specific plans to:

1) attract more (cargo) planes to choose Curaçao as their home or hub

refueling port;

2) explore new markets for bunkering and aviation;

3) expand into new markets through strategic alliances with other

players in the international market;

4) keep pace with international environmental developments by

opening the first green gas station and introducing biodiesel.

It is, however, worth to say that the above-mentioned plans are contin-

gent on the unobstructed supply of fuel products and the expansion of

Curoil N.V.’s storage capacity, which will enable Curoil to store larger

volumes of oil derivatives and thereby increase sales opportunities.

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2.1.3 Utilities

International DevelopmentsRising oil prices and political turmoil throughout the Middle East, in Egypt,

Syria, Tunisia, Bahrain, Libya and surrounding countries only give rise to

the prospect of significant and sustained instability. This region is home

to two-thirds of the world’s known crude oil reserves30. This Middle-East

crisis has sent tremors through the international energy sector. The civil

unrests in the Middle East continue to push oil prices higher as oil

production is being shutdown, threatening oil export. This has put oil prices

on the march. Both volatility and uncertainty are driving up prices.

Another important international development is the constant and

ongoing discussion about the oil peak. The alarm bells have started

ringing as surveys indicate that, at the present rate of consumption, oil

will become increasingly scarce beyond 2030. Oil explorations are going

on all over the world and there appears to be small pockets of

suspected oil reserves, but representing only a fraction of what is

needed to offset the anticipated shortage—a shortage caused also by

the economic growth in countries like China and India. In addition,

energy statistics show that the approximate oil reserves are Saudi

Arabia with 19.5%, Canada with 13%, Iraq with 9.9%, Iran with 8.3%,

Kuwait, the United Arab Emirates and Russia with 7% each, Venezuela

with 5.6%, Mexico, USA, Norway and Indonesia with 5% each, and

Nigeria, Libya, China, Kazakhstan and Algeria, with 2 percent each31

The quake that, among other things, hit the Fukushima nuclear power

plant in Japan has definitely renewed the debate about the safety of

atomic energy. Fears of a nuclear disaster, explosion and meltdown

have gained importance once again. The emergency situation at

Japan’s nuclear power plant has cast a shadow of doubt on the future

of nuclear power as a source of renewable/clean energy. Many coun-

tries already have, or are busy cancelling the building of new nuclear

power plants.

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30Source: moneymorning31 Source: www.nationmaster.com

This will only put more pressure on the demand for oil, with high prices

as a result.

As the price of oil continues to rise, all sources of unconventional and

synthetic oil and alternative energy (wind, sun and others) become at-

tractive. In China, for example, pollution (CO2) is causing serious health

problems, crop damage and acid rain, all of which are taking a social

and economic toll. China has chosen wind power as an important al-

ternative source in order to rebalance the energy mix, combat global

warming and ensure energy security.

Gas prices have taken off, and were predicted to climb substantially in

2011 because of rising oil prices. The events that unfolded in the Mid-

dle East and North Africa were expected to induce energy users to tran-

sition from crude oil to natural gas.

Local DevelopmentsIn October 2010, a new public administration formed by three political

parties took office. The Prime Minister decided to give priority to, among

other things, the energy sector and energy policy. There were no addi-

tional energy-price adjustments during 2010 after April. International

energy-price developments were not incorporated into local energy

prices.

In February 2011, a new energy policy, prepared by the Bureau

Telecommunicatie & Post (BT&P), was approved by the Council of

Ministers. The goal of this new policy is to bring down the price of energy

and raise the dependability of the energy supply. The government will

also be looking into the possibility of making more use of renewable

energy.

In February of 2011, BT&P, which was already the regulator for the

telecommunication sector, was awarded the additional role of regulator

for the energy sector. The government had been intending to create a

regulator for the energy sector for some years now, and this goal has

finally been realized.

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In February 2011, the government also awarded a concession to two

other companies, Build-Own-Operate (BOO) and NuCapital (wind power

developer), besides Aqualectra NV, for the production of water and elec-

tricity.

Since the operational and financial problems experienced in 2010,

several actions have been taken to improve the reliability of the BOO’s

operation. The process started with the transfer of BOO’s ownership

(stocks) to the government-owned Refineria di Kòrsou, which is the

owner of the refinery. This will open the doors for the government to

make the necessary investments and upgrading in the BOO to be able

to make the switch from the pitch fuel currently used to gas, thus

guaranteeing energy stability for the refinery and Aqualectra.

In March 2011, the Prime Minister reached an understanding with

Trinidad & Tobago by which, in the future, Curaçao could purchase gas

as fuel for its energy production—This in an effort to counterbalance

the rising price of oil and reduce the population’s energy costs.

Aqualectra (Holding) is currently executing a merger between the two

companies under its (holding) management. These companies are the

former KAE (production) and the former Kodela (distribution). This

merger should bring down operational costs, increase efficiency and

make the company more competitive.

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2.1.4 Manufacturing

International developments in 201032

World manufacturing is showing the first signs of recovery from the re-

cent financial crisis, according to the International Yearbook of Indus-

trial Statistics 2011 of the United Nations Industrial Development

Organization (UNIDO). In this publication, UNIDO estimates that the

world manufacturing value added (MVA) grew by 5.3 percent in 2010.

Since 2006, this was the first year in which industrialized countries had

a growth trend for industrial production. The MVA for industrialized

countries grew by 3.4 percent in 2010. However, developing economies

were the major force behind world industrial growth. In 2010, the MVA

of developing countries grew by 9.4 percent. Leading developing

economies such as Brazil, China and India showed strong economic

growth performance in 2010. The MVA of all three countries grew by

more than 10 percent in 2010. Thanks to the high growth rates

achieved by developing countries, their share in world manufacturing

output reached 32 percent, compared to 20 percent 10 years ago.

According to the World Bank Group, global industrial production growth

peaked at 15.6 percent in February 2010 after plunging at annualized

rates of nearly 25 percent in early 2009, then declined moderately in

the first and second quarters, slowing abruptly during the third quarter,

with growth effectively stalling by October 2010. Notwithstanding the

sharp rebound in activity during the first half of 2010, by October 2010,

global industrial production was 1 percent above its pre-crisis levels

(August 2008).

Due to the pre-crisis boom, plants in developing countries were operating

at levels significantly above “trend”. Although developing countries’ indus-

trial production was already decelerating (and moving back to trend), it

was still some 1.5 percent above full capacity in August 2008—just before

the onset of the crisis. At that point, industrial production in high-income

countries was already operating at some 2.6 percent below trend, while

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32 Source: International Yearbook of Industrial Statistics 2011 of UNIDO

overall global production (reflecting the weighted share of developing

and high-income countries’ industrial production) was marginally below

trend. Because of the fact that the financial crisis originated directly in

high-income countries, and because of very strong North-North trade

linkages, industrial production in these economies plunged sharply and

more steeply than in developing countries. The global recovery was to

a large extent driven by the turnaround in China, where output growth

reached 27.2 percent in May 2009. Despite slowing thereafter to more

sustainable rates, by November 2010, Chinese industrial production

was 32.8 percent higher than its August 2008 level and exceeded its

pre-crisis trend levels by 0.5 percent. Output in India followed a similar

pattern, with output exceeding its pre-crisis level by 21.1 percent in

October 2010.

Developments in 2010 in Curaçao33

Although Curaçao’s manufacturing sector consists mainly of small and

medium-sized enterprises, there are at least two big actors: the Isla

refinery (see Oil Refinery) and the ship-repair company. These industries

have an impact on the activities of the small and medium-sized enter-

prises and thus also have the biggest influence on the economic output

in that sector of Curaçao’s economy.

In general, 2010 recorded a drop in the manufacturing sector’s value

added to the GDP of Curaçao. The drop in output of the manufacturing

sector was particularly caused by the prolonged shutdown of the Isla

refinery. But a downturn in man-hours sold in the ship-repair industry

also added to the poor contribution of the manufacturing sector.

With regard to the smaller players on the market, business remained

approximately the same in 2010 compared to 200934 .

The constitutional changes and dismantling process have dominated

the policy agenda for the past couple of years according to the Asso -

ciation of Industrialists of the Netherlands Antilles (ASINA). This affected

the activities of the manufacturing sector. Most enterprises remained

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33 Source: Interviews with ASINA, VBC, ADECK, CURINDE34 Source: Interviews (incl. questionnaire) with a selection of companies

idle concerning their activities and waited for the constitutional changes

to take place before taking any definite decisions on deploying new

activities. ASINA is of the opinion that for the manufacturing sector the

high utility costs are an important obstruction to get out of the slump.

These utility costs contribute to the high local production costs and

therefore decrease the competitiveness of Curaçao’s manufacturing

sector compared to the region.

It is expected that the implementation of the policy plan on utility costs35

will contribute positively to the reduction of the production costs for the

manufacturing sector.

Also the Curaçao Industrial & International Trade Development Com-

pany (CURINDE), which manages, among others, the Business Park

Brievengat, where some manufacturing businesses are established,

has indicated that the activities of Curaçao’s industrial sector have

decreased significantly. Local manufacturing companies are facing

competition from imported products and the high energy costs were

mentioned as a factor that hampers progress.

Outlook for the near futureFor 2011, the interviewed representatives of the industrial sector were

expecting positive results from the initiatives to modernize Curaçao’s

tax structure, turning it into a more competitive one. The tax reform

encompasses a shift from direct to indirect taxes, the introduction of

competitive rates for income and profit taxes, and a simplification of

the system. As mentioned before, the implementation is postponed to

January 2012.

A challenge for the future is the introduction and implementation of the

new policy on energy generation. Some manufacturing companies that

can generate their own energy may benefit by having their production

costs lowered and therefore becoming more competitive.

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35 “Beleidsnota Regulering Elektriciteitsvoorziening Curacao 2011-2015”

2.2. CONSTRUCTION

International developments: US36

and the Netherlands

For the United States economy, 2010 was a year of recovery, but it was

sputtering and many questioned whether the recovery was real and if

it could be sustained.

Even though the economy in the United States is slowly recovering, the

construction sector is still facing difficulties. Especially the residential

construction sector was hit hard, and after years of decline the recovery

is slow.

According to the American Institute of Architects (AIA), US nonresidential

construction activity will fully recover in 2012 after declining further in

2011. The hotel and retail sectors will lead the charge, according to the

AIA. Industrial construction will fall by 11.8 percent in 2011, with

smaller decreases in office, hotel and retail construction. However, the

AIA expects construction spending on healthcare, religious and recre-

ational facilities to improve slightly this year.

The year 2010 has also been tough on the Dutch construction sector

and the outlook for 2011 is even worse, according to CBS figures37.

While the Dutch economy is picking up, the construction sector is still

performing badly. In 2009, turnover in the construction sector de-

creased by 4 percent, with another 9-percent drop recorded in 2010.

These figures indicate that the turnover in the construction sector

slumped even more in 2010 than in 2009. The economic crisis spread

further last year and, after residential and non-residential building com-

panies, civil-engineering companies were also struck. As a result of the

weakening demand, many workers were laid off and for the next two

years employment is projected to decline further by 8.5 percent.

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36 Source: http://www.aia.org/37Source: http://www.cbs.nl/en-bouwen-wonen/publicaties/artikelen/archief/wm.htm

The Dutch government introduced special legislation, including a tem-

porary reduction of the value-added tax, to aid the sector‘s recovery.

The forecast is that, starting 2012, the Dutch construction sector will

begin to recover and employment in this sector will increase again.

Local developments 2010In general, the construction sector did not register significant growth in

2010. On the contrary, sales of important raw materials declined and

competition remained stiff. Several major projects were completed in

2010, including hotel expansions, new hotels, social and commercial

housing, etc. The majority of construction activities in the last couple

of years were tourism-related, as the hospitality sector expanded rap-

idly. Usually, the development of tourism areas triggers other infrastruc-

tural works, which was also the case in 2010. There were also

infrastructural works implemented in combination with residential

housing projects. With respect to the Social Economic Initiative (SEI)

and also with the European Development Fund (9th EDF), preparations

were made for several (infrastructural) projects to be implemented in

the course of 2011 and up to 2014.

Based on the number of building permits issued, it can be concluded

that the demand for new developments decreased in 2010 as com-

pared to the previous year. This had to do with the constitutional

changes. The numbers of permits issued was somewhat lower com-

pared to 2009. The number of buildings completed in 2010 was slightly

higher than in 200938.

There are several specializations in the contractors’ group. These can

be clustered into three categories: Civil and Utility Building, Infrastruc-

ture Builders and Mechanical works.

For the Civil and Utility Building category, as indicated in table 2.2, it

can be concluded that the demand for cement decreased by almost 9

percent in 2010 compared to 2009.

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38Source: DROV and CBS

The demand for concrete, bricks and building blocks also decreased

by respectively 22, 10 and 13 percent in 2010 compared to the year

before.

The Infrastructure Builders category did not do as well in 2010 as it did

in 2009, as can be seen in the table below. The index for materials such

as sand, road metal and asphalt decreased in 2010.

The Mechanical Works category is still experiencing a difficult period

due to a lack of major investments in the Isla refinery, which is the lead-

ing consumer for this category.

Table 2.2 Indices of raw materials used in the construction sector

Year 2005 2006 2007 2008 2009 2010

Mijnmaatschappij

Sand and road metal Index 100 104 122 129 127 111

Cement (delivered to BIB) Index 100 127 141 151 137 125

Concrete

Industrky Brievengat

Concrete Index 100 146 150 169 152 118

Building Blocks Index 100 120 139 150 140 122

Bricks Index 100 109 146 148 168 151

Asphalt Plant

Asphalt Index 100 72 120 90 136 113

Source: Janssen de Jong Caribbean

OutlookIn most parts of the construction sector, the economic outlook is opti-

mistic. Many projects are being planned or prepared for implementa-

tion, for example hotels, residential housing, road building, investments

in the refinery, infrastructure works in low income areas and restoration

projects. However, for most contractors there is still no long-term view

on the contracting portfolio.

According to a representative of the AAV39 , an increase in activities for

the construction sector can be expected for the coming years, provided

there is a light economic growth.

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39 Source: http://www.aav-net.com

Given this development, a shortage of local employees to carry out the

tasks is anticipated. That is why the AAV is now working in close

cooperation with ‘Plataforma Korsou na Trabou’40. This platform strives

to provide local people with adequate training to fill the vacancies.

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40 For more information, see: www.korsounatrabou.com

2.3 TRADE SECTORS

2.3.1 Wholesale and Retail Trade

International DevelopmentsHistorically, wholesalers used to be located near to their target market.

However, with the increasing importance of the internet, wholesalers

can more often be found near the actual point of manufacturing. Con-

sequently, nowadays, mainland China, South-East Asia and Taiwan are

all becoming popular as wholesaler locations. China is fast becoming

the world leader in electronics wholesale, overtaking Russia and the

United States. Several factors contribute to this. First, China has the

biggest manufacturing industry in the world. Second, China can manu-

facture products cheaper than most companies based elsewhere. Third,

China has for a long time enjoyed access to the global market, particu-

larly the United States and the European Union. Fourth, China buys

Japanese high technology so it can compete with the other distributors.

And finally, the internet allows a smoother transition of goods and servi-

ces, leading to the rise of the internet .

The retail sector includes two main types of retailers: store (operating

fixed point-of-sale locations) and non-store retailers (reaching cus-

tomers and market merchandise through infomercials, paper and/or

electronic catalogues, etc.). Globally, the growing influence of the inter-

net is making this last aspect of retail a fast growing one, especially in

the first world. This is putting pressure on non-food retailers to redirect

their potential clients’ shopping experience in order to retain these cus-

tomers. According to retail-trend analysts, non-food stores will have to

concentrate on ‘fun shopping’ and will need to sell more name brands.

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Local developments in the wholesale sector41

The year 2010 did not represent a stronger performance when compared

to 2009. There was either no growth or a slight drop in sales. Several fac-

tors contributed to this phenomenon. Besides the lingering aftereffects

of the world financial crisis, locally there were also two elections held.

According to local wholesalers, elections tend to influence customers’

buying behavior negatively. They also tend to make businesses take on a

‘wait-and-see’ approach before continuing with business as usual, thereby

putting investments on hold.

Mother Nature also contributed negatively to an already weak perfor -

mance in this sector by unleashing tropical storm Tomas in November of

2010. As a consequence, in the last months of 2010, record high levels

of rainfall were recorded, causing flooding that created great public

discomfort and financial losses, discouraging consumer spending during

the last two months of last year, a period which is otherwise one of those

with the highest consumer spending.

In the past, wholesalers were guaranteed exclusivity by their suppliers.

This is, however, no longer the case. New actors can (and do) easily enter

the market through so-called parallel imports, which grew substantially

during the last decade. Consequently, there is a lot of pressure on whole-

salers to remain competitive, while also fostering a good employee

environment to prevent workers from switching employers.

Another hurdle wholesalers are facing is the accumulation of the sales

tax, which ends up making the product too expensive for the final con-

sumer, and hence less attractive. This has led to creative ways by the

wholesalers to maintain a market while bypassing the so called three-

tier-system. Wholesalers now have the international supplier bill the

retailer directly for the sales tax, while the wholesalers collect simply a

commission.

While having had to deal with the previously mentioned hurdles, local

wholesalers have also had to adjust to an increased demand for high-

quality products and services as a result of an influx of demanding

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41 Source: Interview with selected representatives from the sector

retirees from the Netherlands who, having purchased a second home

in Curaçao, spend a couple of months each year living here.

Local developments in the retail sector42

The local retail sector is represented by car dealerships, grocery stores,

pharmacies, clothing stores, computer stores, hardware stores and

“mini markets” (smaller grocery and convenience stores). Sales in this

sector increased slightly last year as compared to the year before,

although some areas performed better than others. Several factors

explain these differences. Grocery stores have seen their share drop

because of new stores that have entered the market. However, the

pinch is also being felt due to the large number of mini markets/con-

venience stores opening on the island. Hardware stores tend to do fairly

better, as there is not as much competition as in the case of groceries

stores. The positive results experienced by hardware stores can mostly

be attributed to the purchase of hardware and household appliances,

and less to building-material purchases.

A new labor law has been approved by the Parliament, according to

which at least 80 percent of each business’s employees will have to be

local, and only the remaining 20 percent or less can be imported em-

ployment. Because of this law (referred to as the 80/20 law), some of

the actors in this field, specifically mini markets, will have to make

adjustments to comply with the new regulation.

OutlookThe outlook for wholesalers is positive, as long as they continue

focusing on being competitive and continue raising their standards for

products and services. For most of the actors in the wholesale and retail

sector, the 80/20 law will not present a headache.

The number of wholesalers/importers will most likely not increase.

Possibly, the existing ones will consolidate and try to increase their volume.

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42 Source: Interview with selected representatives from the sector

On the retail level, no dramatic increase in the number of stores is likely

(except for mini markets). However, an improvement of the quality and

services rendered is likely.

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2.3.2 Economic Zones and E-commerce

IntroductionAn E-Zone is a specific appointed area where, among other things, in-

ternational trade and trade supportive services may be performed,

whether or not supported by electronic communication and information

equipment (e-commerce). E-Zone companies benefit from a very

favorable tax regime in Curaçao as regards corporate profit tax, custom

duties, turnover taxes and expatriate tax incentives, as long as they are

actually located and officially admitted in an E-zone.

The profit of E-Zone companies will be taxed at 2 percent (surtax

included) up to January 1, 2026. This 2-percent rate is not applicable

to profits of E-Zone companies generated through the sale of goods or

services to clients residing in Curaçao.

No import duties and turnover taxes are due on goods entering the

E-Zone and services rendered by local companies to an E-Zone com-

pany. Furthermore, no import duties and turnover taxes are due on

products delivered or services rendered to other companies located in

the E-Zone or outside Curaçao.

Employees who work for an E-Zone company can, if certain conditions

are met, qualify for the so-called expatriate status. An E-Zone company

is then allowed to calculate the wage tax on the net salary of employees

without being required to gross up the salary. Furthermore, E-Zone com-

panies can grant certain tax-free benefits to their employees.

In an E-zone, limited liability companies may perform activities that

must primarily be focused on trading goods or providing services to

clients which do not reside in Curaçao. However, conducting business

with other companies in an E-Zone in Curaçao is also allowed. To

conduct business with companies residing in Curaçao, the company

has to file a request with the competent authorities.

A company will be admitted to the E-Zone only if it carries out activities

as described above and, furthermore, if its business activities

contribute to the economical growth of Curaçao by generating either

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foreign currency or employment. The local authorities will see to it (also

through the manager of the E-zone) that E-Zone companies meet the con-

ditions as stated in the E-Zone legislation. If it appears that a company is

located in the E-Zone whilst not fulfilling the conditions, penalties can be

imposed on the respective company and/or its license can be revoked.

Local E-zone and Free-zone developments There are 13 E-zones established on the island, of which 11 are

focused on (trade) services by electronic means, like internet

gaming/gambling, auctions, delivery of IT services and call-center

activities, like hotel & car reservations. The other two Free-zones focus

on the international trading of goods.

Service E-zonesCuraçao currently has 10 e-zones in operation43 with approximately

460 established e-zone companies. The e-service sector directly

employs some 400 persons, mostly call-center operators and IT

specialists. The indirect employment is much higher, of course, if the

required administration, the need for (IT) utilities, etc. are included.

Table 2.3 Established service e-zones

E-zone E-zone operator Surface Established

E-Commerce Park Exploitatie Maatschappij 2,700 m2 2001

E-zone Vredenberg NV 995 m2 2002

E-Powerhouse E-Powerhouse NV

New Haven E-zone I-Management NV 1,170 m2 2003

E-Trading House E-Trading Suites NV 1,200 m2 2003

E-zone Van Engelen E-zone Beheer Van Engelen NV 160.2 m2 2005

EOCG E-zone EOCG Offshore Services NV 820 m2 2006

E-zone Landhuis Joonchi United Trust Company NV 298 m2 2006

E-zone Hoogstraat Exploitatie Maatschappij

E-zone Curaçao NV 1,094 m2 2007

E-zone Scharlooweg E-zone Scharloo NV 854.2 m2 2009

E-zone Annaschool Exploitatie Maatschappij 207 m2 2009

E-zone Vredenberg NV

Source: Curinde N.V.

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43 Air Side Office Park (HASCO) is not in operation

Free-zone Koningsplein and Hato (international trading of goods)The activities of the Koningsplein e-zone are mostly harbor related, con-

centrating on the export of goods like clothing, cosmetics and shoes,

primarily to Venezuela, Trinidad & Tobago, Colombia, Suriname, Ja-

maica and Guyana.

The activities of Free-zone Hato are mostly airport related, concentrating

on the international trade of high-value products like jewelry, gold, heavy

equipment, pharmaceuticals, computers, excise goods and the manufac-

turing of highly specialized products such as contact lenses and printing

ribbons.

Table 2.4 Facts about the goods-trading Free-zones

Number of Number of Surface Construction

established employees space

companies

Freezone 110 1000 23 ha 82,170m2

Koningsplein

Freezone Hato 45 180 12 ha 13,500m2

Source: Curinde N.V.

Visitor numbers from Venezuela and Jamaica, the largest export

markets of the Free-zone Koningsplein, have declined considerably the

last two years. The decline in Venezuelan visitors is caused by the

restrictions on foreign exchange and foreign traveling for Venezuelan

residents. The drop in visitors from Jamaica is related to the world eco-

nomic crisis, which resulted in a drop of the Gross Product of Jamaica

by 2.8 percent in 2009 and 0.8 percent in 201044, and the fact that Air

Jamaica discontinued flights to Curaçao in 2010. The increase in visi-

tors from Haiti is remarkable, bearing in mind the devastating earth-

quake of 2010. The unanticipated increase probably has to do with the

donated aid funds and the fact that visa procedures have been eased.

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44http://www.indexmundi.com/nl/jamaica/bnp-reeel-groeicijfer.html

Table 2.5 Visitors to Free-zone Koningsplein, 2008-2011

Country 2008 2009 2010 2011*

Venezuela 18,225 12,491 7,147 3,214

Jamaica 8,497 7,122 5,300 1,833

Trinidad & Tobago 3,858 4,007 4,436 1,931

Haiti 2,822 3,010 3,570 1,834

The Dominican Republic 2,058 2,000 2,104 667

Guyana 1,201 1,268 1,221 481

Suriname 716 1,102 995 305

China 719 856 801 226

Colombia 540 561 518 229

Others 5,373 6,342 6,280 2,493

Total 44,009 38,759 32,372 13,213

* Up to May 31, 2011

Source: Curinde N.V

In 2010, almost 100 new e-zone licenses were issued by the Ministry

of Economic Development of Curaçao (former Department of Economic

Affairs) on behalf of the Government of Curaçao.

For 2011, a trend of fewer e-zone license applications have been seen

compared to 2010, because of the uncertainty with regard to the new

fiscal structure and the consequences thereof.

A comparison of the figures for the first five months of 2011 and 2010

shows an increase in the total number of visitors, namely from

Venezuela, Trinidad & Tobago and Haiti. An overall increase in visitors

from Venezuela and Trinidad & Tobago is foreseen in 2011 compared

to 2010, and this is a positive sign for the further growth of the free-

zones.

OutlookWhile the e-zone industry, both for goods and services, is a challenging

one globally, it can be safely stated that, notwithstanding the difficulties,

the sector is very supportive in realizing the Curaçao Logistic Hub vision.

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The E-zone is a good and marketable economic activity for Curaçao and,

with all the competitive advantages Curaçao has, its potential is

enormous. Its location at an interchange of submarine fiber optic

cables, its political stability, the establishment of the Caribbean Internet

Exchange and the traditionally strong international financial sector are

just some of the advantages that make Curaçao a perfect place to

conduct (e-)business.

Another interesting development is the plan from the company Curaçao

Technology Exchange (CTEX) to establish a state-of-the-art datacenter

on the island. The facility will be connected to the five existing sub -

marine cables, while two additional cables will land directly within the

facilities of the datacenter, thus providing absolute redundancy. This

facility, in combination with an e-zone status (only 2% profit tax), will

give Curaçao another competitive advantage in the region.

The sector is also awaiting the new fiscal structure.

The two free-zones are managed by the government-owned agency

Curinde N.V. (Curaçao Industrial and International Trade Development

Company). Curinde formulated a strategic plan in line with the local

government’s aim to make Curaçao an international trade center by the

year 2016.

One of the challenges with regard to Free-Zone Koningsplein is that

there are no possibilities to expand it, so further growth will have to

come from an expansion at Free-Zone Hato. Some bottlenecks for both

free-zones are their dependence on adequate airlift, the high utility

costs, and red tape in obtaining business licenses and in customs

handling.

Surely, great news in solving the airlift bottleneck is the announcement

that air carrier Exec Direct started flying twice a week to and from

Jamaica in June 2011, with a freight capacity of 4 metric tons on each

flight. The intention is to extend the route schedule in short term with

Nassau (Bahamas), Port-au-Prince (Haiti), Grand Cayman (Cayman

Islands) and Miami (USA) as new destinations.

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2.4 TRANSPORTATION SECTOR

2.4.1 Air Transport

IntroductionFor a small, open island economy like Curaçao, reliable air connections

to key markets are vital for economic development and growth. Also, to

fulfill the ambition to become a ‘logistical hub’ in the Caribbean, the

aviation industry, which includes airlines, the airport and air cargo busi-

nesses, enables international trade flow as it facilitates the movement

of people and goods and is the backbone of our economic growth.

As of January 2009, Curaçao Airport Holding (CAH)—as the airport’s

owner—approved the takeover of Alterra’s 51-percent share in Curaçao

Airport Investment (CAI) by A-port. A-port is comprised of Unique (Zurich

Airport), the Brazilian Camargo Correa and the Chilean IDC.

International developments in 201045

The International Air Transport Association (IATA) reported that the full-

year 2010 demand statistics for international scheduled air traffic

showed an 8.2 percent increase in the passenger business and a 20.6

percent increase in freight. Demand growth outstripped capacity in-

creases of 4.4% for passenger and 8.9% for cargo. The average pas-

senger load factor for that year was 78.4 percent, which is a 2.7

percentage-point improvement compared to 2009. The freight load

factor saw a 5.2 percentage-point improvement to 53.8%.

Compared to the pre-recession levels of early 2008, December air

travel volumes were 4 percent higher. Airfreight traffic was 1 percent

higher than pre-recession levels; however, volumes have fallen by 5

percent since the peak of the post-recession inventory re-stocking boom

in early 2010.

“The world is moving again. After the biggest demand decline in the

history of aviation in 2009, people started to travel and do business

again in 2010. Airlines ended the year slightly ahead of early 2008

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45 Source: www.iata.org

volumes, but with a pathetic 2.7-percent profit margin. The challenge

is to turn the demand for mobility into sustainable profits,” said

Giovanni Bisignani, IATA’s Director General and CEO.

Severe weather in Europe and North America in December put a dent

in the industry’s recovery. It is estimated that this shaved 1 percent off

of total traffic demand for that month. As a result, passenger demand

dipped to a 4.9-percent growth compared to December 2009 levels,

significantly lower than the 8.2-percent growth recorded in November

2010, as compared to November 2009. Europe was hit the hardest,

with a slowdown in growth in December to 3.3 percent.

Developments in the local aviation industryThe latest developments with regard to the national carriers of Curaçao

are that DAE added Panama to its schedule and Insel Air added

Medellin, Caracas, Charlotte and additional flights to Puerto Rico to

theirs.

With regard to the foreign carriers, it is worth mentioning that American

Airlines increased flights between Miami and Curaçao to twice daily.

Continental Airlines increased the frequency of flights between Curaçao

and Newark to twice a week. Moreover, GOL started with its flights to

Brasilia and Sao Paolo once a week and Blue Panorama flies between

Curaçao and Milan once a week on a seasonal basis. Avianca expanded

their flight schedule and flies to Curaçao daily from Bogota and Air

Berlin started with weekly flights between Curaçao and Dusseldorf.

Unfortunately, Air Jamaica discontinued flights to Curaçao in 2010, but

these were later on taken over by Insel Air. Martinair stopped flying in

November of 2011 but KLM took over the majority of its flights.

Curaçao can still count on a stable number of flights from the region

and Europe. The Amsterdam-Curaçao route is now served at least twice

daily. This has a positive effect for Curaçao, since the obviously stronger

euro (as compared to the NAF) lures Europeans to our island.

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The number of passengers from Venezuela dropped in 2010 but started

picking up in 2011. Passengers from the USA have also been picking up.

Passenger traffic at Hato International Airport dropped by 3.54 percent

in 2010 compared to 2009. In 2009 there was an all-time record of

1,465,898 passengers and in 2010, a total of 1,413,972 passengers.

Table 2.6 Passenger Traffic at Curaçao International Airport

Passenger Passenger Difference

traffic in 2010 traffic in 2009

Total Arriving Pax 635,551 674,670 -5.80%

Total Transit Pax 147,094 121,030 21.54%

Total Departing Pax 631,327 670,198 -5.80%

International Departing Pax 515,351 550,908 -6.45%

Domestic Departing Pax 115,976 119,290 -2.78%

Total Pax (Arriving, 1,413,972 1,465,898 -3.54%

Departing and Transit)

Source: Curaçao Airport Holding N.V.

It is also interesting to know that some (cargo) carriers are making fuel

stops in Curaçao (table 2.7). Currently, Lufthansa fuels an MD-11

seventeen times a month and Cargolux fuels a Boeing 747 eight times

a month. A total of 147 carriers arrive at the airport for cargo and fuel

purposes.

Table 2.7 Monthly cargo and fuel stops at Curaçao International Airport

Operator Grand Total To/From

Amerijet 17 Miami/Miami

Ameriflight 61 Miami/Miami

Cargolux 8 Bogota/Luxembourg

Lufthansa Cargo 17 Bogota/Frankfurt

Aerosucre 8 Bogota/Bogota

Líneas Aéreas Suramericanas 21 Bogota/Bogota

SOLAR Cargo 1 Caracas/Caracas

Transcarga 2 Caracas/Caracas

Vensecar 12 Caracas/Caracas

Grand Total 147

Source: Curaçao Airport Holding N.V.

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Curaçao Airport Holding NV (CAH) CAH went through some interesting events in 2010. In June 2010, CAP

and CAH agreed on a ”financial support agreement.” This agreement

involves that CAH will provide support to CAP in the coming years with

regard to bus services on the airport premises, the demolition of the old

ALM building, hospitality training for airport employees and the acquisition

of loans against favorable conditions for necessary equipment, the

parking lot and new passenger loading bridges. A total of approximately

NAF 1.1 million has been budgeted for this in 2011.

The collaboration with CTB has been intensified to further expand airlift.

In 2010, passenger numbers dropped—the economic crisis being largely

to blame—and airlines deleted some routes to lower costs. In general,

routes can be maintained if more seats are guaranteed and marketing

help is given. For 2009, NAF 750,000 was budgeted to maintain certain

routes. In consultation with the CTB, CAH has agreed to account for a

greater share in 2011, approximately NAF 1.7 million.

A-port presented the master plan for areas B and C and terminated the

previous agreement with HASCO. The master plan was completed in July

2010 and A-port informed HASCO that the agreement negotiated in 2009

would not be continued. A-port indicated, however, that it is still willing to

work together with HASCO to develop the B and C areas. Future coopera-

tion between A-port and HASCO is currently being discussed. Over the

years 2011 to 2013, CAH will invest approximately NAF 20 million in areas

B and C.

Outlook International Developments46The International Air Transport Association (IATA) downgraded its airline

industry outlook for 2011 from a net profit of $9.1 billion forecasted in

December 2010 to $8.6 billion. This is a 46-percent fall in net profit

compared to the $16 billion earned by the industry in 2010. On ex-

pected industry revenues of $594 billion, the $8.6 billion profit in 2011

equates to a net profit margin of 1.4 percent.

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46 Source: www.iata.org

“Political unrest in the Middle East has sent oil over $100 per barrel.

That is significantly higher than the $84 per barrel that was the

assumption in December. At the same time, the global economy is now

forecasted to grow by 3.1 percent this year—a full 0.5 percentage point

better than predicted just three months ago. But stronger revenues will

provide only a partial offset to higher costs. Profits will be cut in half

compared to last year and margins are a pathetic 1.4 percent,” said

Giovanni Bisignani, IATA’s Director General and CEO.

Forecast highlightsIATA raised its 2011 average-oil-price assumption to $96 per barrel of

Brent Crude (up from $84 in December), in line with market forecasts.

Including the impact of fuel hedging, which is roughly 50 percent of

expected consumption, this will increase the industry fuel bill by $10

billion to a total of $166 billion. Fuel is now estimated to represent 29

percent of total operating costs (up from 26% in 2010).

Growing economies give airlines the opportunity to recover some of

these added costs with additional revenues. For example, since early

2009, rising oil prices added 25 percent to unit costs, while average

fares (excluding surcharges) rose by 20 percent. But in 2011, higher

revenues are not expected to be sufficient to prevent the rise in oil

prices from causing profits to shrink by 46 percent from 2010 levels.

An increase in global GDP forecasts to 3.1 percent (from 2.6% in

December) bodes well for continuing strong demand for air transport.

In line with this, IATA revised its passenger-demand growth forecast to

5.6 percent (from 5.2%) and its cargo growth forecast to 6.1 percent

(up from 5.5%). Overall, this will generate a 5.7 percent expansion in

ton-kilometers flown.

Published airline schedules indicate a capacity increase of 6 percent,

slightly lower than the 6.1 percent previously forecasted. Of this, 5

percent will come from the 1,400 new aircraft being introduced to the

fleet in 2011. The additional 1 percent is expected to come from the

normalization of underutilized capacity in the twin-aisle fleet.

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With capacity expected to increase by 6 percent in 2011 and demand

by 5.7 percent, the gap is 0.3 percentage points. This has narrowed

from the previously forecast gap which was 0.8 percentage points.

IATA also highlighted the risk of increasing taxation, particularly in price-

sensitive leisure markets. In 2010, the industry saw new and increased

taxes in the range of 3-5 percent of ticket prices in the UK, Germany

and Austria. Recently, Iceland, India and South Africa have joined with

plans for additional taxation. “This is a price-sensitive business. Aviation

has the power to stimulate economies. But that ability is being compro-

mised by adding taxes at a time when we are struggling to cope with

high fuel prices just to maintain anemic margins,” said Bisignani.

Local developmentsCuraçao Airport Holding EstimatesCAH estimated an amount of NAF 0.7 million in revenues for 2011. This

is NAF 1.7 million lower than the estimated revenue in 2010. The lower

estimated revenue in 2011 compared to 2010 is based on:

· higher earnings of NAF 0.2 million expected in 2011, based on the

concession fees for areas A, B and C. With regard to the concession

fee for area A, the assumption is a slight increase in earnings com-

pared to the forecast of 2010. Because of the financial crisis,

tourism is expected to increase only slightly compared to 2010,

despite increased hotel capacity and extra marketing efforts. With

regard to the concession fee for areas B and C, Curinde’s lease fee

and some smaller returns have been taken into account;

· higher financial returns/lower exceptional charges of NAF 0.6

million expected, also affecting the revenues positively. Higher

financial returns/lower exceptional charges are expected in 2011 com-

pared to 2010 because in 2010 a financial settlement with the former

director had taken place, an item that is not expected in 2011;

· higher expenses of NAF 2.3 million and higher depreciation of

of NAF 0.2 million are expected. Compared to 2010, the expenses

and depreciation in 2011 are expected to increase significantly

based on the additional costs from the financial support agreement

and additional costs to guarantee seat and marketing contributions

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agreed with the CTB, as mentioned earlier, and the assumption of

hiring additional manpower.

Revenues from new projects have not been taken into account.

The estimated revenue for 2012 is derived from the 2011 estimate and

is expected to amount to NAF 1.4 million. This higher revenue compared

to 2011 is based on higher expected passenger numbers, taking higher

costs for the hospitality training into consideration because of inflation.

For the coming years, CAH, as an essential partner in the local aviation

industry, will focus on the runway, which needs to be renovated to com-

ply with international standards, and busses to drive the passengers

from the terminal to the aircraft and vice versa.

As part of the logistical hub vision, CAH has committed itself to align

its strategies as much as possible with the objectives agreed upon with

other local stakeholders of the aviation industry. These objectives are:

· Alignment and commitment of strategic partners to the long-term

Logistical Hub vision, with clear roles and responsibilities for imple-

mentation;

· Development of Airport City to stimulate and facilitate the growth of

the airport, the hub and the island’s economy;

· Development and upgrade of the airport complex and its infrastruc-

ture, based on mutually agreed strategies that support the airlift

services necessary for a competitive logistical hub;

· Ensure high-quality services for airlift, cargo and services within the

airport complex; and

· Create an airlift development strategy that is supported by all strate-

gic partners.

Air TrafficNow that Curaçao has become autonomous, it is responsible for its own

policies, regulations, air-traffic control, agreements and granting of

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licenses to air carriers. This creates the opportunity to re-structure the

island’s aviation policy, giving the island the opportunity to become an

attractive regional and international origin and destination traffic and

transshipment hub for both passengers and cargo between the conti-

nents of North and South America, Europe and possibly Asia.

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2.4.2 Harbor

IntroductionCuraçao’s main port, the Port of Willemstad, is accessible trough the

St. Anna Bay harbor via which vessels can access the Schottegat Bay

inlet. The Port of Willemstad offers most port related services and

activities, including cargo docks, a dry dock, the refinery and other

services. Curaçao’s other commercial ports are Bullen Bay, Caracas

Bay, Fuik Bay, St. Michiels Bay and Spanish Waters.

Important stakeholders in the harbor include the Curaçao Ports Authority,

Curaçao Ports Services, the Curaçao Drydock Company and the Kompania

di Tou Korsou.

Local developments in 2010

Curaçao Ports AuthoritiesThe harbor activities in Curaçao and its facilities are managed by the

Curaçao Ports Authorities (CPA) on behalf of the local government.

In 2009, the harbor’s overall performance showed a decline in compari-

son to 2008, in terms of the number of ships that moored in the harbor.

For 2010, a further decline of 14 percent was noticed compared to 2009.

Freighters and transshipmentsThe number of freighters and transshipment containers has been

decreasing from 2008 on, by 5 percent in 2008, 9 percent in 2009 and

16 percent in 2010 compared to the respective previous years (see

table 2.8). This decrease is due to the still fierce and growing competi-

tion from harbors like Colon and Jamaica, which have upgraded their

harbor infrastructure and activities to accommodate post-Panama con-

tainer ships. Harbors in St. Maarten, Cartagena, Trinidad and Man-

zanillo have also been investing in post-Panama infrastructure.

The international financial and economic crisis also affected the growth

rate of the world trade with negative consequences for local harbor

activities still felt in 2010.

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Furthermore, it has been noticed that for a few years now cargo-han-

dling alliances are being formed between shipping-liner companies and

terminals in the region, taking advantage of the opportunities resulting

from the opening of the new Panama Canal in 2014.

TankersThe number of tankers has been declining. Declines of 1 and of 25

percent compared to the years before have been observed in 2009 and

2010 respectively, whereas 2008 was characterized by an increase of

15 percent, after a drastic decrease of 25 percent in 2007, just like in

2010. The decreases in 2010 and 2007 were both due to a total

absence of notable developments in the demand for oil and derivatives

in those years, leading to a drop in the number of tankers that an-

chored.

Cruise shipsAn average decline of 4 percent in the number of cruise ships was seen

during the past three years. The main reason is the international finan-

cial and economic crisis, which affected the tourism sector as a whole

during these years. For the upcoming two years, a total of 249 and 219

cruise ships are expected to visit our island, in 2011 and 2012 respec-

tively.

Table 2.8 Number of Calls by Type of Ship

Freighter Tanker Cruise Others Total

2007 1,319 1,030 257 432 3,038

2008 1,255 1,188 215 480 3,144

2009 1,198 1,016 234 416 2,864

2010 1,107 763 221 372 2,464

2011 n.a. n.a. 249 n.a. n.a.

2012 n.a. n.a. 219 n.a. n.a.

Source: Curaçao Ports Authority

TEUs

A decrease in the TEUs can be observed in table 2.9. This has to do

with the fact that import of materials for the construction of buildings

like hotels, apartments, houses and other commercial buildings (local

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market) was lower in the past year. Transshipment cargo, which is a

changeable and sensitive market, has also declined.

Table 2.9 Freight Cargo

2007 2008 2009 2010

TEUs 97,271 102,082 97,913 93,603

Local market 81,544 88,375 86,766 83,535

Transshipment 15,727 13,707 11,147 10,068

Source: Curaçao Ports Authority

According to CPA estimates, capital investments ranged approximately

between 10 and 25 million guilders in 2009, and turnover amounted

to over NAF 50 million. For 2010 it was estimated that capital invest-

ments reached between 25 and 50 million guilders and turnover ex-

ceeded NAF 50 million. There were 247 persons employed in 2009,

and the number of personnel remained the same in 2010.

Kompania di Tou KorsouKTK Tugs is a division of Curaçao Ports Authority. This company is respon-

sible for all towing, mooring and pilot services in the ports of Curaçao.

The fleet currently consists of seven tugboats for local and international

towage services and four other boats for transport of pilots, materials

and persons to other ships.

In 2009 and 2010, KTK invested approximately NAF 42 million in a total

of three new tugboats. In the course of 2010, KTK also started opera-

tions in Panama with two tugboats.

The number of persons employed at KTK increased from 90 in 2009 to

115 in 2010. KTK’s contribution to CPA’s yearly revenues is estimated at

approximately 60 percent.

Curaçao Port Services N.V.Curaçao Port Services N.V. (CPS) is a privately owned company carrying

out stevedoring activities in the harbor, which include services to the

national market, the transshipment market and exports from the local

market.

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In the years 2009 and 2010, CPS’s investments were between NAF

100,000 and NAF 250,000, and revenues were between NAF 25 and

50 million.

CPS experienced a slight decrease in its volume of freight cargo in 2010

because most large construction projects in Curaçao had been finished

in 2009, and the Venezuelan tourism sector and transshipment market

declined.

Curaçao Drydock Company N.V.CDM’s core business is to provide ship-repair services. The company

has three docks: one large dry-dock (Antiya-dock) where repairs and

maintenance are done to large ships, a second dry-dock (Beatrix-dock)

where medium to large repairs are carried out, and a third dock (Cu-

raçao-dock), which is a floating dock. The majority of the stocks is in

hands of the government.

Due to the international economic decline, which started late in 2008

but only started affecting the CDM six months later, orders for new ships

were being postponed and repairs were only done if really necessary.

The floating dock is currently inoperative and other facilities such as

cranes, generators and other machinery are also obsolete. This will

affect the turnover for 2011. Turnover is expected to be approximately

NAF 65 million in 2011, whereas in 2010 turnover was NAF 76 million.

An investment of approximately 10 to 11 million dollars is required to

upgrade the floating dry-dock. As regards other possible investment

projects, the CDM has currently no means to finance them. Negotia-

tions are taking place between the CDM and international companies

that are interested in becoming its strategic partners. However,

currently there is no official information about these negotiations.

OutlookCPA expects 249 cruise-ship calls in 2011 and 219 calls in 2012. The

number of passengers is expected to increase from 383,036 in 2010

to about 419,000 in 2011, and in 2012 that number is expected to

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increase by 13 percent. These increases are because larger cruise

ships are expected to anchor.

Moreover, CPA is looking into investing in long-term projects that will

raise the interest of cruise corporations in the island, as it is expected

that very large vessels will become the norm in Caribbean waters once

the expansion of the Panama Canal is finished in 2014. This is an

opportunity for Curaçao’s ports to evolve and grow in capacity to

accommodate these larger vessels. Possible large construction projects

in the Caracas Bay area, a new cruise terminal at the existing Mega

Pier, the possibility for a second mega pier, and waterfront develop-

ments at the Scharloo and Otrabanda wharfs may increase the number

of cruise ships, cruise- and stay-over passengers, the volume of freight

cargo as well as other operational activities for the CDM in later years.

For 2011 and 2012, a decline is expected in CDM’s operations. The

reason, as mentioned earlier, is obsolete equipment. A forecast for

2012 is difficult to give because, besides the fact that investments

need to be done, CDM is also dependent on developments in the inter-

national economy and the shipping sector.

The KTK currently does not have any investment plans, but the com-

pany is looking into future possibilities to increase their turnover and

profits in the coming years.

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2.5 TOURISM

International Developments According to the World Tourism Barometer47, in 2010 world tourism

recovered more strongly than expected. Worldwide, international tourist

arrivals increased by 6.7 percent in 2010, reaching 935 billion. This is far

more than the growth forecast of between 3 and 4 percent made about a

year ago. This growth is remarkable given the many disasters that oc-

curred in 2010, including the devastating Haiti earthquake, severe flood-

ing in a number of countries and the oil spill in the Gulf of Mexico. Even

though all regions reported positive growth, emerging economies

performed exceptionally well. On a sub-regional level there are some

destinations with double digit growth, but also some that are still affected

by the global economic crisis. Tourist arrivals may have reached, or in

some cases surpassed, pre-crisis levels, but tourist expenditures are still

lagging behind.

Asia and the Pacific, as well as the Middle East, registered double-digit

growth in 2010. Africa’s tourism was boosted by the positive exposure of

the World Football Cup, reporting a 6-percent growth in 2010. Europe

reported a modest growth of 3 percent as the region is still recovering

from the economic crisis. UNWTO remains positive about the global

tourism development, as the tourism sector has proven to be very resilient,

even during crises. The growth forecast for 2011 is expected to range

between 4 and 5 percent.

For the Caribbean region, recovery from the global crisis started in 2010

with tourist arrivals increasing by 4.2 percent according to the

Caribbean Tourism Organization. All sub-regions of the Caribbean reg-

istered growth except for the Dutch Caribbean, which was influenced

by Curaçao’s negative growth. Just like other regions, the Caribbean

also noticed the trend of less spending per trip by tourists compared to

the period before the economic crisis. Hotels and other businesses are

still under pressure because of the lower level of spending. Luckily,

tourist expenditure is expected to pick up soon, albeit at a slower pace

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47 World Tourism Barometer is a publication of the UNWTO

than tourist arrivals. The CTO expects tourist arrivals to the Caribbean

region to increase by 5 percent in 2011.

Local Developments in TourismDevelopments in Cruise Tourism 2010In last year’s publication of the Curaçao Economic Outlook it was

indicated that the number of cruise passengers in 2010 would drop

with approximately 40,000 compared to 2009. Cruise arrivals indeed

declined in 2010, totaling 383,036, and the number of calls fell from

234 in 2009 to 221 in 2010. This is a result of changes in itinerary of

the cruise lines that visit our harbor.

Figure 2.2 Cruise Passengers 2000-2010

Source: CTB

Hotel DevelopmentsThe average hotel occupancy rate in 2010 was 71.71 percent, which is

3 percentage points lower than in 2009. The hotel industry, as well as

other businesses in the tourism sector, is under severe pressure in the

wake of the economic crisis, as noted earlier. This translates into falling

occupancy rates for a second consecutive year. Two factors have con-

tributed to the declining occupancy rates: First of all, the growing num-

ber of new rooms added to the stock during recent years and, secondly,

the lower number of tourist arrivals to Curaçao.

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0

10

20

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Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Month

$ pe

r bar

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

calls

0

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pax

calls

pax

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2011

65

70

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Average Occupancy Rate

Occupancy Rate

North America

Latin America

and the Carib

bean

Oceania/Australia

EuropeAsia

Africa

Seas/Space

0

4000

8000

12000

16000

Figure 2.3 Average Occupancy Rate, 2005-2011*

Source: CHATA

* Figures for 2011 are from January to June

Stay-Over Tourism 2010Total arrivals were strongly influenced by the negative performance of the

Venezuelan market, resulting in a drop of almost 7 percent. This is the

second consecutive year with a negative growth of stay-over tourist

arrivals. Arrivals from all markets except South America registered growth,

with a remarkable 32.4 percent increase from the North-American market.

The European market grew by almost 10 percent, while arrivals from the

Caribbean increased by almost 7 percent. Arrivals from South America fell

by 42.8 percent. On the other hand, total stay-over nights increased 5

percent in 2010 as compared to 2009.

There were some interesting developments with regard to airlift, including

the addition of the Brazilian Airline “Gol” and seasonal flights from Italy

with airline Blue Panorama. Air Berlin has started with a direct flight from

Dusseldorf, Germany in the autumn of 2011, which will further boost

European arrivals. Besides that, KLM will introduce a new winter schedule

in 2011, increasing its flights to Curaçao to nine a week. This translates

to approximately 5000 additional seats on a yearly basis. Airlift to the

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Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Month

$ pe

r bar

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

calls

0

50,000

100,000

150,000

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pax

calls

pax

2005

2006

2007

2008

2009

2010

2011

65

70

75

80

85

90

Average Occupancy Rate

Occupancy Rate

North America

Latin America

and the Carib

bean

Oceania/Australia

EuropeAsia

Africa

Seas/Space

0

4000

8000

12000

16000

United States and several cities in South America will also improve as

more flights are added in the course of 2011.

Another remarkable development is the intention to construct a space-

port facility at the Hato airport. This spaceport will be used primarily for

commercial personal flights.

Table 2.10 Developments in Main Markets Stay-over Tourism, 2009-2011

2009 2010 % Change 2011a % Changeb

North America 42,560 56,345 32 49954 29

South America 131,593 75,250 -43 56712 28

Venezuela 105,932 44,342 -58 34108 38

Brazil 4,466 8,092 81 5675 11

Suriname 9218 9451 3 5734 2

Colombia 6,260 6,287 0.4 4997 30

Caribbean 36,637 39,175 7 27425 5

Aruba 16,756 18,830 12 12954 3

Jamaica 7,064 5,107 -28 3480 5

Barbados 862 1149 33 673 -25

Trinidad and Tobago 5,318 6,858 29 4774 2

Dom.Rep 2,644 2,943 11 2555 43

Haiti 1,811 1,927 6 1429 20

Europe 149,538 163,863 10 113617 5

Netherlands 127,175 140,183 10 95985 3

United Kingdom 2,088 2,191 5 1615 12

Belgium 3,744 4,458 19 3259 12

Germany 6,842 6,648 -3 4666 10

Italy 730 1,133 55 1536 116

Spain 841 951 13 550 -18

Others 6,351 7,018 11 7710 95

Total visitors 366,679 341,651 -7 255418 16

Stay-over Nights 2,755,936 2,904,485 5 2150180 13

Source: CTB

a Figures are from January to August

b Percentage refers to arrivals from January to August 2011 compared to the

same period in 2010

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North AmericaIn 2010, arrivals from the North-American continent soared by an

astonishing 32 percent after years of negative performance. The year

2010 has finally marked the end of the economic crisis and leisure

travel from especially the American tourist is picking up again. Perfor -

mance from this market in the eight months of 2011 continued to be

extremely positive, with double-digit growth rates. Airlift from this region

has increased significantly with the twice-weekly non-stop flights from

New Jersey with Continental Airlines.

South AmericaGrowth figures for this region (-43%) were negatively influenced by the

numbers for Venezuela (-58%). Arrivals from several other South American

countries that registered growth include Brazil (81%), Ecuador (33%) and

Suriname (3%). Brazil’s remarkable growth can be ascribed to the addi-

tional marketing efforts and the availability of direct flights with Gol

Airlines. It is worth mentioning that arrivals from Venezuela were positive

for the first months of 2011. This is the first time since July of 2009 that

an increase in arrivals from this country has been seen.

CaribbeanIn 2010, arrivals from the Caribbean region increased by 7 percent.

Despite the developments in Haiti, arrivals from that country still grew

by 6 percent while arrivals from Jamaica continue to plummet as a

result of lack of direct airlift. Other countries in this region performing

well in terms of arrivals include Aruba and the Dominican Republic. This

positive trend in arrivals from the region is expected to continue

considering the figures of the first eight months of 2011.

EuropeEurope and especially the Netherlands continue to be the largest and

strongest market. Overall growth from this region was 10 percent in

2010, but some countries performed well while others registered

negative growth. Arrivals in the first months of 2011 show a modest

growth from this region.

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2.6 FINANCIAL AND BUSINESS SERVICES

2.6.1 Commercial Banks

Local DevelopmentsConstitutional changesThe year 2010 marked the dissolution of the Netherlands Antilles on

October 10, and the establishment of two new autonomous countries

in the Dutch Kingdom, namely St. Maarten and Curaçao, while the BES

islands—Bonaire, St. Eustatius and Saba—joined the mother country,

the Netherlands, as Dutch municipalities.

The larger banks with subsidiaries on the BES islands are subject to

Dutch fiscal policies and regulations as per October 10, 2010. On the

other hand, St. Maarten and Curaçao adopted the former Antillean rules

and regulations. The BES islands opted for dollarization of their

economies and introduced the American dollar as their official currency

as of January 1, 2011. Consequently, it was necessary for the banks to

convert their banking systems in order to adapt to the new require-

ments. This also has a negative impact on the number of currency-

exchange transactions, since the BES islands will not be exchanging

guilders to dollars anymore. Since January 1, 2011, the prudential

supervisor for the BES banks is the Dutch Central Bank (DNB), while

for branches in St. Maarten and Curaçao, the supervising authority is

the Central Bank of Curaçao and St. Maarten (CBCS).

Interest ratesThe cash surplus the banks accumulated as a result of the collection

of matured government bonds in 2009 and 2010, together with the

global economic crisis, lead to a downward pressure on interest rates.

Lending rates for personal and corporate loans, car loans and mort-

gages were reduced to levels of approximately 3 to 5 percent. Interest

on savings and deposits were also reduced to approximately 0.75 to

2 percent at the major banks. Interest rates have remained stable in

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the first half of 2011. Because of the historically low interest rates on

savings and deposits with banks, customers are looking for other ways

to earn a return on their funds48 .

Banks performance in 2010The local banks performed well in 2010, notwithstanding the fierce

competition. The latest financial reports of some key players in the

banking sector (MCB, Giro, Orco Bank) show that most banks experi-

enced a positive growth in their yearly income (table 2.11). Girobank

posted an increase in net income after taxes of 35 percent, to an

amount of NAF 15.9 million. Orco Bank booked a net of tax profit of

NAF 10.7 million, a 65 percent increase.

Table 2.11 Overview of Key Financial Figures 2010/2009 of Selected Commercial Banks in Curaçao

(in 1000 NAF)

Banks Assets Assets Liabilities Liabilitie Net Income Net Income

in 2010 in 2009 in 2010 in 2009 after after

tax 2010 tax 2009

MCB Bank49 6,034,658 5,843,210 5,490,082 5,343,473 135,043 119,136

RBTT Bank50 4,084,889 4,099,207 3,703,433 3,697,784 21,632 45,624

Girobank51 1,237,387 1,377,620 1,119,406 1,274,397 15,928 11,784

Orco Bank52 593,761 606,652 537,456 561,043 10,696 6,495

Now that the banks’ investment opportunities in government bonds are

history, most banks opted to increase their loan portfolio by expanding

corporate and retail financing. The lower lending rates applied stimu-

lated consumers and businesses to take more loans. A significant

growth in personal loans, mortgages and commercial loans with all the

major banks can be seen. Girobank booked a 25-percent increase in

their loan portfolio53. MCB Bank experienced a 7-percent growth in

loans to corporate and retail customers54.

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48 Source: MCB Annual Report 201049 MCB Annual Report 201050 RBTT Consolidated Highlights as of October 31, 201051 Girobank Annual Report 201052 Orcobank Consolidated Highlights 2010 Antilliaans Dagblad April 18, 201153 Source: Girobank Annual Report 2010.54 Source: MCB Annual Report 2010.

Orco Bank’s loan portfolio increased by 10 percent55. Most of the banks

expanded their services and offered new lending products and other

consumer products. Mobile banking, EMV Smart debit cards and other

credit-card solutions were launched in 2010.

Table 2.12 Specification of Accounts of Selected Commercial Banks in Curaçao 2010/2009

(in 1000 NAF)

Banks Gross Loans Gross Loans Customers’ Customers’

& Advances to & Advances to Deposits 2010 Deposits 2009

Customers 2010 Customers 2009

MCB Bank 56 3,491,050 3,257,709 5,192,685 5,117,338

RBTT Bank57 2,229,376 2,295,993 3,326,607 3,249,461

Girobank 58 515,454 413,135 972,570 1,102,759

Orco Bank59 413,270 375,900 445,244 482,353

OutlookFurther financial stresses may emerge as monetary policy in high-

income countries begins to tighten. As short- and long-term interest

rates and re-financing costs rise, both banks and firms may find their

balance sheets under renewed pressure — requiring additional measures

to address shortcomings60.

According to the Orco Bank, the downward pressure on interest rates

is expected to continue. The market will become even more competitive

and interest rates will continue to be very volatile61. The decreasing high

Euro rate will mitigate the investment and purchasing power of investors

and tourists, in particular the Dutch market. Higher food and oil prices

globally will also have an immediate effect on the inflation rate in

Curaçao, affecting local consumer spending negatively.

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55 2011 The World Bank Group56 MCB Annual Report 201057 RBTT Consolidated Highlights as of October 31, 201058 Girobank Annual Report 201059 Orcobank Consolidated Highlights 2010 Antilliaans Dagblad April 18, 201160 2011 The World Bank Group61 2010 Consolidated Financial Highlights Orco Bank

2.6.2 International Financial and Business Services

IntroductionInternational financial services (IFS) include off-shore financial institu-

tions specialized in international banking, (tax) lawyers, insurance com-

panies, maritime services, fund management companies and those

specializing in security dealings. The business services sector includes

onshore companies engaging in advisory and consulting services to

clients on all aspects of business, legal affairs, financial management,

logistics and technological issues.

In Curaçao, the IFS sector consists of the following stakeholders:

· the Curaçao International Financial Services Association (CIFA)

· the Curaçao Bankers Association (CBA)

· the Central Bank of Curaçao and St. Maarten (CBCS)

· the Ministry of Finance

· the Tax Department

· the Netherlands Antilles Tax Advisors (VAB)

The IFS can be considered an important pillar of the island’s economy,

based on the number of people employed (approximately 1000 profes-

sionals are employed in the sector), the sector’s contribution to GDP

(according to the Central Bureau of the Statistics, on average, the

financial mediation sector62 contributes with 19% to the GDP), its

generation of foreign exchange earnings and its contribution to the

public treasury.

The island’s inclusion on the OECD white list contributes to the sector’s

good reputation. The OECD is a leading international organization that

acts as the established order in the international financial world. Their

rankings are respected throughout the world and often determine the

rankings of jurisdictions and play an important role in the ratification

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62 The financial mediation sector consists of the domestic banks, insurance companies, pension

funds, international financial services and other financial services

of treaties. The sector is furthermore FATF63, EU and AML64 compliant.

The local government is aware of the importance of the IFS sector to

the local economy and therefore efforts are being made to maintain

the acquired position on the OECD white list. It is moreover worth men-

tioning that the (13) TIEAs65 signed by the Government of the former

Netherlands Antilles are also applicable to the new Country of Curaçao.

At the time of this writing, the government is taking concrete actions to

convince the authorities of Brazil that their perception of the local IFS

sector is based on erroneous facts. Brazil seems to have blacklisted

Curaçao based on outdated information. The government’s aim is to

sign a TIEA with Brazil on short term.

The government supports the international laws and guidelines on

money laundering and terrorism financing. Therefore, pursuant to

Recommendation number 26 of the Financial Action Task Force (FATF),

the government established an elaborative system to scrutinize external

and internal financial flows, the Financial Intelligence Unit or, as it is

called in Curaçao, the Unusual Transactions Reporting Center (MOT, by

its Dutch acronym)66. All banks, both offshore and onshore, including

the Central Bank, trust companies and investment institutions, credit

card companies, life insurance companies, casino’s, money remittance

companies and customs authorities have the obligation to report

unusual transactions to the MOT.

Some non-financial businesses and professionals, such as lawyers, no-

tary offices, accountants, tax consultants, jewelers, real-estate agents,

car dealerships, administrative offices and insurance companies—both

life and non-life—also have a reporting obligation.

It is important to mention that the international financial crisis had little

impact on the local IFS sector. This can be attributed to the strict regu-

lation and supervision on the sector carried out by the Central Bank.

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63 Financial Action Taskforce64 Anti Money Laundering65Tax Information Exchange Agreements66 Meldpunt Ongebruikelijke Transacties

According to the Central Bank of Curaçao and St. Maarten67, the IFS

and the domestic banks were the main contributors to the slight

economic expansion in 2010.

Development in 2010On October 10, 2010, Curaçao became an autonomous country within

the Dutch Kingdom. According to the constitutional agreements, Curaçao

and St. Maarten form a monetary union with a common Central Bank and

a common currency. This implies that the Central Bank of Curaçao and

St. Maarten is in charge of the monetary and financial supervision of

Curaçao and St. Maarten. Curaçao and St. Maarten need therefore to

harmonize legislation in the monetary area, as well as in the areas of

finance and financial and integrity supervision68.

OutlookAccording to the CIFA, an image shift is needed, from tax haven to in-

vestment haven. The CIFA’s ultimate aim is to bring Curaçao into the

world’s top five financial centers in the near future. In order to achieve

this goal, the government of Curaçao must remain aware of the impor-

tance of the financial sector and take concrete actions to formulate

policy for the sector, create more incentives to attract international

offshore banks and investors, expand the current number of tax treaties

by signing more treaties with other countries, sign more double tax

treaties, give priority to making and implementing the corresponding

laws, make the labor market more flexible by making the immigration

laws more flexible, implement tax reforms, reduce or eliminate red tape,

develop a strong and professional labor force and shorten the time it

takes to apply for establishment permits.

Expectations for 2011 are high. The CIFA’s members are optimistic

about the rest of the year. The Dutch Caribbean Securities Exchange

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67 Press release 2011-00168 Press release 2011-001.

(DCSX) was officially launched in January 2011, marking the beginning

of further developments in the local capital market.

Moreover, in 2011, the government started taking initiative actions to

sign a TIEA with Brazilian authorities. This shows that the government

is aware of the need to expand the current list of tax treaties and com-

mitted to doing so. It is expected that more negotiations with other

countries will soon follow.

The FAFT evaluation took place ending of August/beginning of Septem-

ber 2011 and the financial sector is pending for the results of the

evaluation. A good evaluation by the FAFT is essential to obtain an

outstanding reputation and positioning on the OECD white list.

Concluding, it is important to mention that the proposed 80/20 labor

law has been approved. The CIFA is somewhat concerned about this

labor law due to the shortage of professionals for some specific

positions on the island.

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2.6.3 Insurance Companies

IntroductionThe insurance sector in Curaçao consists of life insurance companies,

non-life insurance companies, funeral-service insurance companies,

captives (life and non-life) and professional reinsurance companies.

Captive insurance companies insure risks which exclusively or predom-

inantly result from the execution of a business or profession outside of

Curaçao (and St. Maarten, or the Netherlands Antilles up to October

10, 2010) by shareholders or members of enterprises combined in a

group or of participants in a co-operative relationship69. Professional

reinsurance companies conduct business exclusively as reinsurers. The

majority of life and non-life insurance companies in Curaçao are either

subsidiaries or branches of foreign insurance companies. However,

independent local insurance companies are found predominantly

among non-life insurance companies.

International Developments in 2010The year 2010 could be characterized as one of many catastrophes,

both natural and man-made. These resulted in economic losses

(damages) of almost USD 218 billion, but total costs to insurance

companies were calculated at approximately USD 43 billion.

In terms of insured losses, 2010 ranks as the seventh highest year

since 1970. Compared to 2009, insured losses were over 60 percent

higher in 2010, but still below insured losses in 2005, the year in which

losses soared after hurricane Katrina, Wilma and Rita struck the USA70.

Insured losses are depicted per region in figure 2.4. In 2010, North

America ranked as the region with the highest insured losses, with over

USD 15 billion, followed by Latin America and the Caribbean with al-

most USD 9 billion each, and Europe with over USD 6 billion. Though

Asia experienced the highest economic loss compared to other regions

in 2010—almost USD 75 billion—insured losses amounted to approxi-

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69 Source: Central Bank of Curaçao and St. Maarten70 Source: Swiss Re, Sigma, Natural Catastrophes and Man-Made Disasters in 2010

mately USD 2 billion. Catastrophes in Africa resulted in the least insured

losses in 2010, at approximately USD 0.1 billion. The rest of the losses

claimed at insurance companies, USD 2 billion, were for damages oc-

curring at sea or in space.

Capital gains in the insurance industry increased in 2010. However, op-

erating profitability is weak because of low premium rates and low in-

terest rates. Premium rates have been deteriorating since 2004, with

only temporary interruptions after major catastrophes and at the be-

ginning of the financial crisis. The weak economic performance in se-

veral countries and competition in the industry have resulted in limited

premium growth. Interest rates have been low since 200871.

.

Figure 2.4 Insured Losses per Region in Millions USD

Source: Swiss Re, Sigma, Natural Catastrophes and Man-Made Disasters in 2010

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71 Source: Swiss Re, Global Insurance Review 2010 and Outlook 2011/12

0

10

20

30

40

50

60

70

80

90

100

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec Month

$ pe

r bar

rel

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

calls

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

pax

calls

pax

2005

2006

2007

2008

2009

2010

2011

65

70

75

80

85

90

Average Occupancy Rate

Occupancy Rate

North America

Latin America

and the Carib

bean

Oceania/Australia

EuropeAsia

Africa

Seas/Space

0

4000

8000

12000

16000

Local developments in 2010In Curaçao, there was extensive damage in the aftermath of Tropical

Storm Tomas, early in November of 2010. The island faced flooding in

many areas, resulting in considerable material damage. The local in-

surance companies and subsidiaries paid out approximately NAF 70

million in compensation for damages related to Tomas. The amount of

compensation was much higher than average. However, this had a min-

imal effect on the insurance companies’ results, since the majority is

re-insured abroad.

In addition to paying out claims, the insurance companies helped by

contributing financially to a fund to help people that were not insured

for the damages suffered.

For some years now, the number of life and non-life insurance compa-

nies (subsidiaries, branches and independent) has remained the same.

The number of life and non-life insurers registered at the Central Bank

of Curaçao and St. Maarten per December 31, 2010, is specified in

table 2.13.

Table 2.13 Number and Type of Life and Non-Life Insurers in Curaçao

Subsidiaries Branches Independent

Life insurers 3 5 2

Non-life insurers 5 8 8

Source: Central Bank of Curaçao and St. Maarten

OutlookInternationally, growth has returned to the insurance industry and

capital positions have been restored, but the sector still faces some

challenges72: Low interest rates will lead to modest results over the next

couple of years. Insurers are used to investing in substantially risk-free

assets with low investment yields. In order to get higher returns, they

will have to invest in riskier assets. On the other hand, rating agencies

and investors might regard this as highly unsafe.

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72 Source: Swiss Re, Global Insurance Review 2010 and Outlook 2011/12

Many regional insurers face the issue of falling credit ratings for

government bonds. The bonds of these OECD member countries, which

had previously been reviewed as sound investments, are now considered

junk bunds. This might lead to a rethinking of the risk-free-asset concept

that has been an important pillar of insurance assets in most regulatory

jurisdictions.

Moreover, increased regulatory capital requirements for riskier assets

and products with guarantees will affect savings and pension products,

which are the main pillar of the life industry’s earnings. Insurers are

responding by designing new products and re-pricing guarantees

embedded in products.

Curaçao also faces the issue of falling interest rates. Because of the

partial repayment of the national debt by the Netherlands, banks and

insurance companies have a liquidity surplus. Some life insurances are

based on higher yields and, in the current situation, insurance compa-

nies facing this problem are losing money.

Furthermore, insurance companies are expecting to lose more market

share as a consequence of the anticipated introduction of a general

healthcare insurance. The general healthcare insurance is expected to

make the social insurance (SVB) accessible to more people, since the

maximum salary to be eligible for this insurance will be raised. As a con-

sequence, fewer people will need a private insurance.

Moreover, on the BES islands, insurance companies have already lost

a piece of the market because of the new constitutional structure on

these islands.

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2.7 HEALTHCARE

IntroductionIn Curaçao, total healthcare spending has been rising for the last couple

of years and this requires measures to achieve at least a manageable

system for the future. For example, the total medical costs of the Social

Insurance Bank increased from NAF 91.8 million in 2005 to NAF 123.2

million in 2008. Healthcare institutions are also faced with higher costs.

For example, in 2010 the total costs of the three hospitals, namely the

Dr. J. Taams Clinic, the St. Elisabeth Hospital and the Antillean Adventist

Hospital, were NAF 181.5 million. For the year 2011, these three hos-

pitals expect an increase in their costs of between NAF 6.2 million and

NAF 10.5 million73.

A recent actuarial calculation by the Social Insurance Bank (SVB) shows

that, if policies remain unchanged, in the next 20 years large deficits

will emerge within the collective National Health Services. Intervention

is therefore inevitable. The introduction of a basic health insurance, in-

cluding increased contributions, is one of the most essential measures

to manage the risk of unpayable healthcare in the future.

The government’s budgetThe budget of the government of Curaçao for 2011 shows an amount

of NAF 312.4 million set aside for healthcare, compared to NAF 297.6

million in 2010. The difference in the total amounts budgeted for 2010

and 2011 is mainly the increase of NAF 11.8 million in the contribution

to the fund for healthcare costs of retired civil servants (FZOG). Almost

half of the total healthcare budget (namely NAF 146.3 million) is allocated

to the Health Cost Bureau (BZV) for the contribution for Pro- Pauper (PP)

patients74. According to the Ministry of Finance, healthcare is one of the

largest budgetary risks because of its share in the total public budget and

external uncontrollable factors such as an ageing population, the increase

of the frequency of chronic disorders, the high costs of the technology, a

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73 Source: Annual report and budgets of the three hospitals74 Pro-Pauper or PP patients receive free health care from the government.

rising price index and the rise in the costs of the different healthcare

institutions75.

Coverage measures and current projectsPartly at the request of the Board of Financial Supervision (College

Toezicht), a number of coverage measures were determined in 2009

which should lead to a balanced public healthcare budget in the future.

The most important measures are on the cost of medications, the

restructuring of cure, the Integrated Medical Specialists Company and

a New Remuneration Structure for Public Healthcare. These measures

should result in a structural saving of approximately NAF 25 million,

the savings from the Integrated Medical Specialists Company (GMSB).

The savings from the GMSB will be used directly in healthcare.

Cost of medications The cost of pharmaceutical care in Curaçao has been roughly estimated

at NAF 130 million per year. Two measures have been identified that

should result in savings on the government’s budget. The first one is

the implementation of the Medicine Reimbursement System Vergoe -

dingssysteem, GVS). GVS is a method to regulate the prices of medica-

tion. The principle behind the GVS is to create groups of drugs, called

clusters, that have the same therapeutic effect and are thus

interchangeable. Such a cluster, “antacids” for instance, includes brand

names (spécialités) and generics (drugs for which the patent has

expired) at different prices. An average fixed price is determined for all

the medicines in that cluster using a mathematical model. The SVB and

the BZV will only pay the maximum average price of the drugs within a

cluster. Drugs that are more expensive may still be sold, but the insured

will have to pay the difference between the actual price and the average

price.

The introduction of the GVS was delayed several times, for various

reasons.

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75 Source: Ministry of Finance

In 2010, the government decided to postpone the introduction and to

ask the SVB and the Health Cost Bureau (BZV) to present an alternative

proposal with comparable savings. In July 2010, the Island Council of

Curaçao accepted SVB and BZV’s alternative proposal, but its financial

effects have not been adequately calculated.

The second measure to reduce the costs of medications is the intro-

duction of a fixed prescription fee (Receptregelvergoeding, RRV). This

system requires that pharmacies be paid a fixed fee or tariff for the

service of providing medication to patients, instead of a margin above

the purchase price. This way, the pharmacist has no financial interest

in delivering expensive drugs and therefore has a more unbiased in

the choice of drugs. The introduction of the RRV was also postponed

several times. In August 2010, the Island Council of Curaçao decided

to postpone the RRV’s introduction until the results of the objective

study “Research Standard Cost Pharmacies” (onderzoek normkosten

apotheekhouders, ONA) becomes available. ONA focuses primarily on

the method to determine the amount of the fixed prescription fee, but

also contains recommendations about managing costs for the entire

drugs chain. At this time, the ONA study has been completed and by

the Council of Ministers.

Restructuring of CureRestructuring of cure is another important coverage measure and of

the following components:

a. Clearing out the PP-base. At the end of 2010, the number of PP-

insurance card holders had already decreased by 1,500 persons

compared to 2009.

b. Providing regulation. A policy regulating the establishment of

medical specialists and other facilities is essential to manage the

costs and should be in line with the new general healthcare insur-

ance and the New Remuneration Structure for Public Healthcare

(NBG). On the supply side, there is an estimate of the number of

individual healthcare providers up to 2016. An analysis needs to be

done to get an estimate for the demand side, and with that purpose

a committee will be established soon.

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c. Introducing a basic healthcare insurance for the BZV and SVB

insured. The BZV and SVB have already handed in their advice to

both the Minister of Healthcare and the Minister of Finance. The

aim is to implement the basic health insurance in 2012.

d. Efficiencies through the integration of the BZV and the SVB. This

merger will result in economies of scale and cost reductions through

better coherency and efficiency in tariffs. With the new basic health

insurance and the implementation of the NBG, the work processes

will cost less time.

Introduction of the Integrated Medical Specialists Company (GMSB) This concept forms the basic principle behind the new hospital. GMSB

implies that hospital care and care provided by medical specialists are

integrated and that the current structure of numerous private clinics,

the so-called “ofisinas”, will disappear. Besides a reduction in costs,

GMSB will stimulate cooperation between the specialists, which is

expected to result in a better quality of healthcare.

Prior to the construction of the new hospital, the government will start the

GMSB concept by renovating the existing policlinic at the St. Elisabeth

Hospital and building a new policlinic (poli nobo76 ) to accommodate some

specialists. This should lead to a faster and smoother adoption of GMSB

in the new hospital. The total investment for the “Poli Nobo” is estimated

at NAF 15 million. The renovation of the current policlinic, with facilities to

accommodate 20 specialists, is ready. It was originally the intention to

demolish the St. Thomas College and construct a new temporary policlinic

at that location. However, at this moment the definite location of the new

temporary policlinic is still being discussed.

A consultant was contracted to push the project for the construction of

the new hospital forward. In June 2011, the government took some

important decisions and announced the location of the new hospital,

namely a piece of land next to the University of Curaçao (formerly the

UNA)77.

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76 This implies renovating the existing policlinic, demolishing the St. Thomas College and constructing

a new, temporary policlinic at the present location of the St. Thomas College 77 More information about the new hospital and a description of all the important decisions is avail-

able at http://www.dewegnaaronsnieuweziekenhuis.org/

The tender process for the construction is meant to start in January

2012.

Introduction of the New Remuneration Structurefor Public Health (NBG) A precondition for the GMSB is the revision and modernization of the

tariff structure for specialists. NBG makes a better cost containment

possible. The new tariff structure will consist of three components

which together make up the remuneration. The care provider receives

(a share of) one or more components according to the degree in which

conditions are met. The three components are a basic component, an

organization component (based on a rating of the specialist’s office,

level of expertise and services rendered) and a quality-and-production

component. The size and proportions of the different components vary

for each professional.

The aim was to start with the implementation of the NBG as of Septem-

ber 1, 2011. However, the medical specialists opposed to some parts

of NBG and its implementation. In April 2011, the Prime Minister put

the project temporarily on hold to create room for proper discussions

about this topic.

Other current developmentsBesides the above-mentioned policy measures to achieve an affordable,

efficient and high-quality healthcare system, there are some other

develop ments that took or will take place in the healthcare sector:

Ÿ The government issued a permit to the Pain Clinic to open a medical

center offering 24-hour pain control.

Ÿ One hospital invested in medical devices to start offering treatments

for sleep problems, e.g. sleep apnea. This means that fewer patients

will need to be sent abroad, thus reducing costs.

Ÿ An organization will start offering specialized heart-and-lung revali-

dation courses. The twice-a-week courses last for 12 weeks and a

multidisciplinary team of five professionals will support the partici-

pants.

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Ÿ For the last couple of years, more and more healthcare institutions

have been having financial problems, not being able to cover all their

costs. A number of them submitted a request for a tariff increase to

the Ministry of Economic Development. At the moment, these are

being evaluated.

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3. ENHANCING BUSINESS CLIMATE

Creating a good business climate is one of the measures to improve

Curaçao’s economic structure. A good business climate is crucial for

any country, especially if that country wants to stimulate entrepreneur-

ship and attract investors.

The investment climate in Curaçao is in need of improvement and, as

a result, foreign investments have slowed down considerably in recent

years.

The requirements for sustainable economic development according to

the Social Economic Initiative (SEI) include:

- Sufficient capital availability at acceptable rates;

- A good balance between supply and demand on the capital and

labor market;

- Cultivating trust from investors by transparent and consistent

handling on the part of the government;

- Avoiding unnecessary administrative burdens and red tape;

- Promoting Curaçao internationally as a location for doing business.

The government has embarked on a few projects to improve and/or

make the economic structure more competitive and stimulate eco-

nomic development. Some important projects include:

· Red Tape Reduction within the Economic Column

· Centralization of Economic Permits

· Updating the Business Establishment Policy

· Putting a call centre for permits into operation

· Developing an SME (Small and Medium Enterprise) and Entrepre-

neurship Policy

· Promoting the viability of SMEs

· Restructuring the tax regime

· Establishing a Curaçao Economic Development Board, a Regulatory

board and a Competition Authority.

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The Ministry of Economic Development aims to complete three of these

projects soon, specifically: Developing an SME and Entrepreneurship

Policy, Updating the Business Establishment Policy and Centralizing

Economic Permits.

Developing an SME and EntrepreneurshipPolicy for the next four yearsOne of the Ministry of Economic Development’s focal points for the

years 2011-2014, derived from the current government’s strategic

points and themes, is entrepreneurship development. Improved

government services to businessmen (e.g. permits) is of great impor-

tance in this perspective, as is the improvement of the quality of

businesses on the island (business sophistication), so businesses can

increase productivity and competitiveness, grow, innovate, export,

internationalize, form alliances with and/or deliver goods and services

to international companies.

Micro, small and medium-sized enterprises comprise more than 95 per-

cent of businesses on the island of Curaçao. They are an important

share of the business community, generating jobs (± 56% in 2006,

CBS), income, export (foreign exchange), economic growth (invest-

ments) and innovations. No wonder they are called the backbone of

our economy.

In order to get the most out of these enterprises, it is important to have

an SME and Entrepreneurship Policy in place. With the formulation of

an SME and Entrepreneurship policy, the Ministry aims at increasing

the chances of small entrepreneurs to succeed, measured by the net

number of new companies, promotion of employment, the increase of

added value of the SMEs as a sector, and investments by SMEs.

Requirements for a successful SME and Entrepreneurship Policy

include entrepreneurship development, performance-oriented subsi-

dies and reinforcement of the SME structure.

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The SME and Entrepreneurship Policy vision is directed towards market

capitalization, facilitation and promotion support in general to new and

existing businesses, activating entrepreneurship for the general com-

munity (young and old), promoting and supporting entrepreneurs who

want to grow through innovation and encouraging and supporting en-

trepreneurs who want to grow by being export-oriented, thus contribut-

ing to the ideal of Curaçao as hub-nation in the Caribbean.

The policy should stimulate entrepreneurship throughout the education

system, have the proper balance between startup requirements and

support given to enterprises, and include performance and impact

measurement (productivity) of SMEs.

Some of the proposed adjustments include a Small Business Administra-

tion Unit within the Ministry which would be responsible for all executive

and coordinating SME-related functions of the government, the develop-

ment of an organized process for scouting, mentoring, training, consulting

and coaching to SMEs, and a single new, simplified incentive scheme for

both starting and existing businesses.

The Ministry aims to achieve this by promoting active participation

(combined efforts) by relevant interest groups.

This project is a SEI project worth a total of NAF 100,000, sponsored

by Dutch funds and the government of Curaçao. The policy has been

completed and approved by the Council and the Ministry will start with

the execution of this policy in 2012. The timeframe for the policy is four

years, which should suffice for the activation of existing SME and start-

ing SMEs, but a longer policy horizon is desired when it comes to the

development of entrepreneurship, which involves the new generation

of potential entrepreneurs on the island, including those that are

currently still in school.

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Updating the Business Establishment PolicyThe business establishment law dates from 1946. The law was initially

created to protect local trade on the Islands of the Netherlands Antilles.

The current business establishment tool consists of the business estab-

lishment permit and the director’s permit. The business-establishment

permit deals with the location of the establishment and the nature of the

enterprise, while the director’s permit determines whether the concerning

position can be filled by a foreigner. Hence, basically, the business esta b-

lishment regulation is being used as a tool for spatial development and

foreign policy, instead of economic policy.

The business establishment policy should focus on economic develop-

ment with equal opportunities for all entrepreneurs. Undesirable acti v-

ities and/or persons (danger to the public order, criminal or doubtful

background) should be kept outside. The establishment of foreign-

exchange generating, export-oriented and employment-creating activi-

ties should be stimulated. The policy has to be efficient and must be

enforced.

The efficiency of the current business establishment policy is question-

able, considering the relatively long application processing time, red

tape (intricate and unnecessary measures or procedures) lack of trans-

parency, deficient alignment with other permits, and inadequate service

to clients.

Moreover, due to lack of supervision, the establishment permit policy

is not being enforced properly.

The Ministry of Economic Development wants to create an updated busi-

ness establishment policy and a coherent legislation to stimulate activity

in Curaçao in connection with optimal and sustainable economic growth.

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Much attention is given to reducing the inefficiencies perceived by on-

and off-shore clients, specific sectors, notary offices, small interme -

diation offices and the individual investor or entrepreneur.

This project is a SEI project. The legislation has been prepared and is

reviewed by the legal department of the public administration. Currently

it is awaiting approval by the Council of Ministers, which will be advised

by the Social and Economic Council (SER) and the Advisory Council. In

the mean time, a new guideline has been introduced to facilitate the

process of obtaining a business permit.

Centralization of Economic PermitsCurrently, the issuance of economic permits is fragmented among

several government agencies including the Ministry of Economic

Develop ment, the Sector Regulatory and Legal Affairs, which falls under

the Ministry of General Affairs, and the Special Laws Bureau of the

Curaçao Police Force. This means that the related procedures for both

local and foreign (potential) investors can be perceived as a somewhat

unclear and cumbersome experience. This lack of transparency and

red tape can even scare off (potential) entrepreneurs.

Creating clarity regarding the economic licensing process is a simple

measure to facilitate and stimulate local and foreign investors and is

therefore of great importance for the economic development of the

island of Curaçao.

The new government entity will include a “one-stop window service”

where the whole permit process can be facilitated. This has a series of

advantages, such as improved customer service, uniformity, trans-

parency, centralization of information and faster processing.

This “one-stop window” refers to the front-office. The process of gran t-

ing a permit (authorization) and assessing the content (back-office) will

remain the responsibility of the concerning government agencies.

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The Ministry of Economic Development has started working towards an

implementation plan for the Centralization of Economic Permits. This

implies that the back office for business-establishment and director

permits, e-Zone permits (Ministry of Economic Development), permits

for trade in food and beverages and permits for offering accommoda-

tions (Sector Regulatory and Legal Affairs under General Affairs) as well

as permits for snack bars, mobile canteens and stands (Special Laws

Bureau of the Curaçao Police Force) will be concentrated in one point,

taking into consideration staff, organization, finance, information and

operations.

With the centralization of the back office for economic licenses, the

Ministry of Economic Development expects to achieve more efficiency

in the processing of permits, place core activities where they belong,

attain effectiveness, more efficient monitoring and more efficient su-

pervision by the relevant authorities (including Economic Investigation).

This project is financed with government funds. The implementation

plan has been completed and has been sent to the Human Resources

department of the public administration for advice. The Ministry of Eco-

nomic Development expects to start with a tendering process for the

administrative operations in the first quarter of 2012.

ConcludingWith these policies, laws and plans in place, the Ministry will be on its

way to enhance the business climate on Curaçao. Of course, the effects

of these measures will depend on their implementation and on their

continuous monitoring and evaluation. Moreover, the Ministry has to

start, carry on and promote projects to enhance the business climate,

as well as other projects it has committed itself to, in order to warrant

groundbreaking improvements in our economic structure for the period

to come.

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Appendix I Methodology

The different sections were assigned to policy advisors at the Ministry

of Economic Development based on their expertise on particular eco-

nomic sectors or topics.

The articles are based on:

• Information provided by agencies such as the Central Bureau of Sta-

tistics, the Central Bank of the Netherlands Antilles, the Chamber

of Commerce, the Curaçao Tourist Board, etc.

• Information provided by other government departments

• Interviews, discussions and surveys among stakeholders

• Information provided by international organizations such as the

ECLAC, the IMF, the OECD, the UN, the World Bank etc.

Combining this information with their own knowledge, the authors for-

mulated their analysis of specific economic sectors or topics as neu-

trally and objectively as possible. Information gained through interviews

with stakeholders was used with caution, keeping in mind their poten-

tial subjectivity. The draft articles were discussed with the stakeholders

to avoid any possible misinterpretation of the information provided.

The quantitative macroeconomic calculations and projections were

carried out with the aid of Curalyse, a macroeconomic model for

Curaçao. The Curalyse model consists of two parts: a dataset with the

national accounts (Government, households, businesses and “rest of

the world”), monetary figures, labor market figures, balance of

payments and behavioral and exogenous variables (such as interna-

tional inflation and government policy measures). The Curalyse model

can be used to analyze past economic performance, make projections

of selected variables and calculate the effect of policy measures by the

government as well as actions by labor organizations or the business

community.

Another model used for this publication was Turistika. The Turistika

model is designed especially for the tourism sector and can be used to

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calculate the tourist industry’s impact on various economic variables.

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Appendix II List of Table and Figures

Chapter 1

Table 1.1 Macroeconomic indicators 2010

Table 1.2 Macroeconomic outlook for 2011

Table 1.3 Macroeconomic impact scenarios 2012

Table 1.4 Dismissal Requests

Table 1.5 Mobility in the search for employment

Table 1.6 Development of the population

Table 1.7 Financial report of the Island Government of

Curaçao, January 1 to October 10, 2010

Table 1.8 Current and proposed income taxation

Table 1.9 Curaçao's Balance of Payment

Table 1.10 The contribution of the local government in the

economic SEI projects

Chapter 2

Figure 2.1 International crude-oil price development, 2010

Figure 2.2 Cruise passengers 2000-2010

Figure 2.3 Average occupancy rate, 2005-2011*

Figure 2.4 Insured losses per region in millions USD

Table 2.1 Overview of sales volumes 2010 compared to

2009

Table 2.2 Indices of raw materials used in the construction

sector

Table 2.3 Established service e-zones

Table 2.4 Facts about the goods-trading free-zones

Table 2.5 Visitors to free-zone Koningsplein, 2008-2011

Table 2.6 Passenger traffic at Curaçao International Airport

Table 2.7 Monthly cargo and fuel stops at Curaçao Interna-

tional Airport

Table 2.8 Number of calls by type of ship

Table 2.9 Freight cargo

Table 2.10 Developments in main markets stay-over tourism,

2009-2011

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Table 2.11 Overview of key financial figures 2009-2010 of se-

lected commercial banks in Curaçao

Table 2.12 Specification of accounts of selected commercial

banks in Curaçao, 2009-2010

Table 2.13 Number and type of life and non-life insurers Cu-

raçao

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Appendix III List of Abbreviations

AAV Antillean contractors' association

ADECK Curaçao's association of small and medium entrepreneurs

AIA American Institute of Architects

ALM Former Antillean aviation company

AML Anti Money Laundering

AOV Social pension fund managed by SVB

APNA Pension fund for civil servants

ASEAN Association of Southeast Asian Nations

ASINA Association of Industrialists of the Netherlands Antilles

BES New Dutch municipalities in the Caribbean consisting of the

islands Bonaire, St. Eustatius and Saba

BOO Build Own and Operate

BOP Balance of Payments

BRK Regulation for fiscal arrangements between the countries of

the Dutch Kingdom

BT&P Bureau Telecommunication & Post: regulatory agent for

telecommunications, post and utilities in Curaçao

BZV Health insurance agency for civil servants

CAH Curaçao Airport Holding

CAI Curaçao Airport Investment

CAP Curaçao Airport Partners

CBA Curaçao Bankers Association

CBCS Central Bank of Curaçao and St. Maarten

CBS Central Bureau of Statistics

CD Certificates of Deposit

CDM Curaçao Dry-dock Company

CEO Chief Executive Operation

Cft Board of Financial Supervision

CHATA Curaçao Hospitality and Tourism Association

CIFA Curaçao International Financial Services Association

CIS Commonwealth and Independent States

CPA Curaçao Ports Authorities

CPS Curaçao Port Services

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CTB Curaçao Tourist Board

CTEX Curaçao Technology Exchange

CTO Caribbean Tourism Organization

CURINDE Curaçao Industrial & International Trade Development

Company

DAE Dutch Antillean Express

DCSX Dutch Caribbean Securities Exchange

DirAZ Former Netherlands Antilles' directorate of labor affairs

DNB Dutch Central Bank

DROV Government department charged with spatial and housing

development

DWI Former Curaçao's department of social affairs

ECB European Central Bank

ECLAC Economic Commission for Latin America and the Caribbean

EDF European Development Fund

EIA Energy Information Administration

EIU Economist Intelligence Unit

EU European Union

FAO Food and Agriculture Organization

FATF Financial Action Taskforce

FZOG Fund to cover health costs of retired civil servants

GDP Gross Domestic Product

GMSB Integrated Medical Specialists Company

GOL Brazilian aviation company

GVS Medicine reimbursement system

HASCO Hato Assets Company N.V.

IATA International Air Transport Association

IDC Chilean airport operator that maintains and exploits airports

and airport related businesses in South America

IFS International Financial Services

IMF International Monetary Fund

ISO International Organization for Standardization

KLM Royal Dutch Airlines

KTK Curaçao Tugboat Company

KvK Chamber of Commerce

LPG Liquefied Petroleum Gas

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MCB Maduro and Curiel's Bank

MENA Middle East and North Africa

MOT Unusual Transactions Reporting

MVA Manufacturing Value Added

NAF Netherlands Antilles Guilder

NBG New Remuneration Structure for Public Healthcare

OECD Organization for Economic Co-operation and

Development

ONA Research Standard Cost Pharmacies

OPEC Organization of Petroleum Exporting Countries

PAWA Dominican Republic airline

PdVSA Petroleos de Venezuela S.A.

PP Pro-Pauper

RBTT Royal Bank of Trinidad & Tobago

RdK Curaçao Refinery

RRV Fixed prescription fee for pharmacies

SEI Social Economic Initiative

SME Small and Medium Entrepreneurship

SMOC Foundation advocating a cleaner environment in

Curaçao

SVB Social Insurance Bank

TEU Twenty-foot Equivalent Unit

TIEA Tax Information Exchange Agreement

UN United Nations

UNA Former University of the Netherlands Antilles in

Curaçao

UNIDO United Nations Industrial Development Organization

UNWTO World Tourism Barometer

USONA Executive entity of the Foundation that manages the Devel-

opment Fund of the former Netherlands Antilles

VAB Netherlands Antilles Tax Advisors

VBC Association of businesses in Curaçao

WTI West Texas Intermediate

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Economic Development Ministry of

PublisherGovernment of Curaçao

For further information

Ministry of Economic Development

Molenplein z/n

Curaçao

Phone: (+5999) 462 14 44

Fax: (+5999) 462 75 90

E-mail: economic.outlook@gobiernu.an

Web: http://www.gobiernu.an

English language correctionA Translation Studio

Design and Layout Dajo Graphics N.V.

PrintingHi Printing N.V.

Material from this publication may be reproduced without prior

permission, provided that the source is acknowledged

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