October 12, 2015
Honduras is about as far from Ireland as you can get. It is extremely dangerous, very poor and over the past few years this little Central American country has become the fulcrum of the drug trafficking wars as vicious drug gangs battle it out for supremacy.
Arriving in San Pedro Sula on my way to film the extraordinary Mayan ruins of Copan is totally disorientating, not least because we arrived in a terrifying Caribbean storm to be assigned a bodyguard each. The film crew was instructed not to travel together and most certainly not to go anywhere on our own. The motorway from the airport quickly disintegrates into a potholed narrow track. Along that road, all around me was exotic, different and bewildering, except for one thing: a massive billboard poster of a munificent, smiling Bertie Ahern!
Yes, you read right: Bertie was on the circuit talking about the Irish miracle in Honduras!
Bertie’s lecture was hosted by Digicel, the company owned by Denis O’Brien. As I saw the next day, Digicel events and sponsoring were everywhere. And the locals loved it. As one Honduran mobile user put it to me, with Digicel “we get first-world telecoms in a third-world country”.
The same goes for Trinidad, Barbados and, of course, Jamaica. Digicel burst onto the scene in the Caribbean, challenging the local telecoms providers and offering the locals a totally different product. It rode the massive boom in technology and communications to become the dominant player in many countries.
As well as being an extremely good telecoms company, it is a brilliant marketing machine. I noticed this last year on a trip to the region. Digicel’s branding machine is phenomenal.
When Usain Bolt breaks world records, he is sponsored by Digicel. When the West Indies play cricket, the Windies are sponsored by Digicel. When local football tournaments are held, they are sponsored by Digicel. The company has played this role of being the people’s company brilliantly – and, in truth, it has been on the side of consumers, who were used to poor state-run telecoms until Digicel arrived.
Initially, the mobile market boomed in the Caribbean as the market for telecoms exploded worldwide. However, maybe the market is maturing now and possibly the growth of Digicel in the Caribbean will be more related to the economic growth of the region itself. With that in mind, let’s examine the economy of the region.
The first thing to appreciate is that the Caribbean is a low growth area, characterised by tourism, remittances from emigrants in the US and agriculture. It’s a bit like Ireland in the sun before we had multinationals. There are one or two commodity producers with oil and gas such as Tobago, Guyana and Surinam – those bits of the Caribbean closest to Latin America – but in general it’s all about sun, sand and tax shelters.
The climate matters hugely, not just because of tourism but because the climate is so extreme. Parts of most of the islands are devastated by hurricanes on an annual basis – this is costly and increases risk. The extreme heat also affects the economy because it is difficult to work in soaring temperatures. These are not problems that economists typically cite when making comparisons between countries, but they are enormously material.
Because of the limited sources of economic activity, many of these small countries experience periodic budget and current account crises and can be highly dependent on a few factors, like energy prices and the strength of the dollar. And, of course, there is always politics. The Caribbean has always been an exotic jewel fought over by the big powers. You feel these historical echoes of big 17th-century power struggles everywhere.
For example, when you walk around Nassau, the capital of the Bahamas, there are echoes of Dublin everywhere. Not Dublin as we know it, but colonial 17th century Dublin, evident in architecture, public buildings and churches. You realise that our struggles were part of a much greater canvas. In Nassau’s old Anglican graveyard, it is noticeable just how many early settlers were born in Ireland and how many Irish Anglicans with typical Catholic surnames are buried in the early Protestant churches.
Even the name, Nassau, is the same Nassau of Nassau Street in Dublin. The Nassau family were German royalty who allied with the Protestant Williamite House of Orange. As the Caribbean became the theatre for the great colonial wars between England, Spain and France, it is not surprising that prized territories like the Bahamas would be named after victorious British royalty.
Today, the Spanish, French and even British aren’t so important. The geopolitical struggle is between Venezuela and the US. In fact, the rapid implosion of the Venezuelan economy is the biggest external threat to Caribbean stability and is behind the Americans’ sudden overture to Cuba.
For years, much of the Caribbean has been subsidised by cheap oil from Venezuela. The arrangement is called Petro-Caribe and countries such as Jamaica, the Dominican Republic and Haiti have benefited hugely from cheap oil. However, as the oil price falls, Venezuela is collapsing. It is no longer able to afford to send cheaper oil to its neighbours. Over the past few years, Venezuela has mortgaged itself to China. Venezuela has also been bankrolling Cuba, the ultimate prize of the region.
The collapse of Venezuela is behind America’s sudden openness to Cuba because Washington fears that China, Venezuela’s banker, will come to Cuba’s rescue and America will face increased Chinese influence only 90 miles off the cost of Florida. Therefore, as the power vacuum in the region opens, America is keen to be the boss. Having ceded Cuba to Russia a generation or two ago, Washington isn’t going to make the same error again by letting Beijing get a foothold in the Caribbean.
However, as the Venezuelan oil subsidy ends, and the fall in commodity prices impacts Caribbean farming exports like sugar, the countries are facing financing problems. So the currencies of many Caribbean countries are falling as the economies try to adjust.
These currency movements are most pronounced in Haiti and Jamaica – Digicel’s two biggest markets. And as the company has to report its earnings in US dollars, the fall in the local Caribbean currencies must be having an adverse impact on the company’s bottom line.
As the US Federal Reserve moves to raise rates, this upward move in the dollar is exacerbated and this also negatively impacts highly-leveraged equity markets, squeezing the appetite for any company’s flotation.
As it was in the 17th century, the Caribbean is once again the epicentre of a giant geopolitical struggle. As in all struggles, there will be collateral damage, and sometimes the fallout is felt in the most unlikely quarters.