CURAÇAO ECONOMIC

OUTLOOK 2010

THE CROSSROAD TO AN AUTONOMOUS COUNTRY

WITHIN THE DUTCH KINGDOM

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COLOPHON Publisher Island Territory of Curaçao For further information Department of Economic Affairs, Island Territory of Curaçao, Molenplein z/n Curaçao, Netherlands Antilles Tel: (5999) 462 14 44 Fax: (5999) 462 75 90 E-mail: info.dez@curacao-gov.an Internet: www.curacao-gov.an English language correction A Translation Studio Design and Printing Interpress N.V.

. Reproduction of material from this publication is permitted without prior permission, provided that the source is acknowledged

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Contents

PREFACE ............................................................................................................. - 5 -

EXECUTIVE SUMMARY .................................................................................. - 7 -

CHAPTER 1 CURAÇAO’ S MACROECONOMIC PERFORMANCE ...... - 13 -

1.1. INTERNATIONAL AND REGIONAL DEVELOPMENTS AND THEIR

CONSEQUENCES FOR CURAÇAO ............................................................. - 13 - 1.2 MACROECONOMIC INDICATORS FOR CURAÇAO .......................................... - 22 - 1.3 LABOR MARKET DEVELOPMENTS IN CURAÇAO........................................... - 30 - 1.4 FISCAL & MONETARY DEVELOPMENTS IN CURAÇAO ................................. - 34 - 1.5 BALANCE OF PAYMENTS IN 2009 ............................................................... - 37 - 1.6 SOCIAL ECONOMIC INITIATIVE PROGRAM .................................................. - 40 -

CHAPTER 2 SECTORAL DEVELOPMENTS IN ACCORDANCE WITH

DEFINED FUTURE ECONOMIC COURSE ................................................. - 46 -

2.1 PRODUCTION SECTORS ....................................................................... - 46 - 2.1.1 AGRICULTURE, LIVESTOCK, AND FISHERIES ............................ - 46 - 2.1.2 OIL SECTOR ..................................................................................... - 54 - Prospects for Curoil N.V. in 2010 .............................................................. - 59 - 2.1.3 UTILITIES ......................................................................................... - 60 -

2.2. CONSTRUCTION ................................................................................... - 64 - 2.3 TRADE SECTORS .................................................................................... - 66 -

2.3.1 WHOLESALE AND RETAIL TRADE ................................................ - 66 - 2.3.2 ECONOMIC ZONES AND E-COMMERCE...................................... - 71 -

2.4. TRANSPORTATION SECTOR............................................................... - 76 - 2.4.1. AIRPORT .......................................................................................... - 76 - 2.4.2 HARBOR ............................................................................................ - 82 -

2.5 TOURISM ................................................................................................. - 85 - 2.6 FINANCIAL AND BUSINESS SERVICES SECTOR ............................. - 90 -

2.6.1.COMMERCIAL BANKS .................................................................... - 90 - 2.6.2 INTERNATIONAL FINANCIAL & BUSINESS SERVICES ............... - 93 - 2.6.3 INSURANCE ...................................................................................... - 96 -

2.7 HEALTH CARE ........................................................................................ - 98 -

CHAPTER 3 THE CROSSROAD TO AN AUTONOMOUS COUNTRY

WITHIN THE DUTCH KINGDOM .............................................................. - 108 -

APPENDICES : ................................................................................................ - 115 -

APPENDIX I: METHODOLOGY ................................................................ - 115 - APPENDIX II: LIST OF TABLES & FIGURES .......................................... - 116 - APPENDIX III: LIST OF ABBREVIATIONS ............................................. - 118 -

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PREFACE

The Curaçao Economic Outlook is an annual publication of the Department of

Economic Affairs. This 2010 edition provides an overview of macroeconomic and

sectoral performance in 2009, and in addition discusses the prospects for the

Curaçao economy in 2010, underlining some key policy intentions for the near

future as well as expected opportunities and risks.

This publication was prepared by a team of policy advisors at the Department of

Economic Affairs, with contributions by several government institutions, sector-

specific associations and private companies, which shared their latest data and

knowledge with the Department of Economic Affairs.

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EXECUTIVE SUMMARY

CURAÇAO MACROECONOMIC PERFORMANCE In 2009, the overall macroeconomic performance of Curaçao dropped slightly by

0.2 percent in real terms as compared to 2008. This decline can be attributed mainly

to the negative development in the export sector, primarily in tourism. The decline in

investments in 2009 was another factor that impacted the overall macroeconomic

performance negatively. The island‘s consumer-price index remained at a low level

in 2009, owing to the moderate international demand for commodities worldwide.

In the optimistic scenario, the macroeconomic outlook for 2010 shows a 0.7-

percent growth in gross domestic product in 2010. Nevertheless, the increase in

private consumption, combined with the higher private investments, will lead to an

increase in business production. All by all, the contraction in the export of goods and

services, combined with moderate increases in investments and private consumption,

will lead to a marginal increase in gross domestic product according to the

pessimistic scenario.

The number of people employed in 2009 remained nearly unchanged as compared to

2008. A remarkable development on the labor market is that, while the number of

employed persons barely increased, the number of inactive ones increased by more

than 750. The number of unemployed persons, however, declined sharply by 441

persons, which caused the unemployment rate to plummet to 9.7 percent of the labor

force.

The public finances of the Island Government of Curaçao reflect a budget surplus

of NAf. 90 million. Total actual government revenues in 2009 were NAf. 16 million

lower than initially estimated. On the other hand, the total government expenditures

were NAf. 99 million lower than estimated. This budget underspending was mainly

caused by lower expenses on the budget items ―interest payments‖ and ―goods and

services‖. Expenditures for interest payments were NAf. 23 million lower, made

possible by advance payments received from the Netherlands in connection with the

debt-relief program.

The financial position of the Island Territory of Curaçao improved in 2009. The total

debt at the end of 2009 recorded a decrease of NAf. 261.9 million compared to the

end of 2008, reaching a level of NAf. 2,647.8 million.

During the first nine months of 2009, the BNA conducted a laid-back monetary

policy. The main monetary policy instrument of the BNA, the reserve requirement,

was reduced monthly, reaching a level of 11 percent. At the end of 2009, net foreign

assets recorded, an increase of 24.3 percent compared to December of 2008. This

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increase was attributable to increases in both the commercial banks‘ and the Central

Bank‘s net foreign positions. In 2009, the net domestic assets registered a decrease

of 0.7 percent compared to 2008. This decrease was a result of the declined demand

for liquid assets by the governments due to the implementation of the debt-relief

program.

In 2010, the monetary policy will remain mainly focused on maintaining the external

stability of the Netherlands Antilles. Therefore, policy adjustments will depend on

the expected monetary union formed between St. Maarten and Curaçao.

In 2009, the current account on the balance of payments showed a deficit of NAf.

699.3 million. This is an improvement in the current account of approximately NAf.

891 million compared to 2008. The improvement in the current account can be

ascribed mainly to the increase in current transfers from the Dutch government in

accordance with the debt-relief program. In line with the worsening current account,

the net foreign debt of the private sector increased by NAf. 873.7 million in 2009,

albeit at a slower pace compared to 2008.

As a result of developments in the current, capital and financial accounts in 2009,

net foreign reserves expanded by NAf. 535.3 million compared to 2008. For 2010,

we expect the current account deficit to stay at about the same level as in 2009, as a

result of, i.a., substantial capital inflows resulting from the Dutch debt-relief

program for the Netherlands Antilles.

The Social Economic Initiative (SEI) was founded with the goal to introduce a

number of projects, reforms and measures to be implemented in the period of 2008

through 2010, with a possible extension into 2011, to ensure sustainable

improvements in the economic structure and social backlogs on Curaçao. Within the

framework of stimulating economic progress, a set of policy fields have been

defined. Each potential project/initiative must contribute to restructuring the

economy and fit into at least one of the indicated policy fields in order to qualify for

the SEI fund. The policy fields are: research on long-term economic development,

improvement of the investment climate by restructuring regulations and procedures,

promotion of entrepreneurship and investments in the infrastructure on behalf of

strong economic development.

SECTORAL DEVELOPMENTS The number of actors in the Agriculture, Livestock and Fisheries sector remained

approximately the same as compared to 2008. Trade in local agriculture products

diminished in 2009 as compared to 2008. In 2009, the Department of Agriculture,

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Livestock and Fisheries invested NAf. 175,000 in a new tractor. In addition, there

were NAf. 20,000 in private investments, financed by OBNA.

In addition, the Department of Agriculture, Livestock and Fisheries invested NAf.

200,000 in the import of purebred animals. Besides the investments made by the

Department, there were also private investments financed by OBNA for an amount

of NAf. 10,237. The average price of fish increased by approximately NAf. 3,- per

kilo in 2009, compared to 2008. This is a result of the increase in fuel prices

The year 2009 was an interesting one for the local oil sector due to the many

challenges encountered. The economic crisis had a negative impact on the

performance of the local refinery. During 2009, the oil refinery exported oil products

to several countries. The year 2010 is expected to be a turbulent year for the local oil

refinery as a result of the many problems with the CUC‘s (BOO) energy supply.

In 2010, Curoil NV launched the sale of Low-Sulfur Gasoil. Despite the huge

competition Curoil N.V. has been encountering in the aviation sector, preliminary

figures indicate an 18.8-percent growth in jet-fuel sales during 2009, in comparison

with 2008.

In 2009, there were some interesting developments in the utility sector. Aqualectra

started the process of refinancing the company. Another important development

regards community awareness. People are more willing to work towards energy

saving and the use of alternative energy. In December of 2009, Aqualectra signed a

power-purchase agreement with NU Capital for the delivery of 30 MW. This

agreement means an expansion of the two wind parks that are currently producing

energy. For 2010, the government is working on an energy policy which will make it

possible to develop the use of renewable energy in Curaçao.

Contrary to international developments, the overall conclusion is that 2009 was a

positive year for the local construction sector. Several major projects were

completed, including the Hyatt Hotel, a new wing at the local university, a new

building for one of the largest local banks and several expansions of hotel

complexes. The number of permits issued in 2009 was somewhat lower, with a total

value below that of the previous year.

The local wholesale market recorded a 5-6 percent decrease in annual sales in 2009

as compared to the peak performance in 2008. According to players in the retail

sector, there are still possibilities to enter the food-retail market on the island. The

key to enter the market is to have a better approach to sales and product

differentiation.

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The reconstruction of another building at the Free-zone Koningsplein is in full

swing and scheduled for completion in November of 2010. A new access-control

system was also introduced to cater to security needs in connection with the visitor-

enrollment program at the free-zone. In 2009, Curinde invested about Naf. 7 million

in the Koningsplein Free-zone. In 2010, Curinde will invest at least Naf. 5 million in

the Koningsplein Free-zone.

Passenger traffic at Hato International Airport set an all-time record in 2009, with a

total of 1,465,898 passengers. In malice of the positive developments in passenger

travel, caution is advisable, considering the dramatic reduction in cargo, by 20

percent. However the general aviation at Hato shows a decline of 24 percent

compared to last year. The focus of the local aviation industry for the coming year(s)

will be on the development of code-share partnerships with much bigger and

stronger companies, like the latest Insel Air – Gol code share deal.

The harbor‘s overall performance for 2009 in comparison to 2007 shows a decline

of 5.7 percent and in comparison to 2008, a decline of 8.9 percent in harbor

activities. The opening of the new Panama Canal also offers opportunities to

Curaçao Ports Authority (CPA), which has already started a new company in

Panama to offer tugboat services.

For 2010, the CPS expects a 2 to 3 percent decline in freight cargo. This is due to the

strong competition by the free-zone in Panama, the completion of large construction

projects and the tourism sector‘s decline. The CPA expects cruise-ship calls to

decline from 234 in the year 2009 to 231 in 2010. The amount of passengers will

also decline form 423,088 to 383,921.

In 2009, the tourism sector recorded more than 420,000 cruise passengers.

However, the predicted number of cruise passengers for 2010 will be almost 40,000

short of last year‘s total.

Partly as a result of the increase in the number of rooms, the average hotel-

occupancy rate went down from 85 percent in 2008 to 75 percent in 2009.

In 2009, arrivals from Europe totaled 148,450, of which 126,209 were from the

Netherlands. Arrivals from the North-American market amounted to 42,055 in 2009,

translating to a 17-percent drop as compared to 2008. Fortunately, the first quarter of

2010 proved to be a turnaround for the US market, marking a 31-percent increase in

arrivals. Arrivals from the South-American market dropped, resulting in a loss of

one third of arrivals. In addition, the total arrivals from the Caribbean region

dropped by 12 percent in 2009.

By the end of 2009 and into the beginning of 2010, the local commercial banks, as

the main treasury holders, were confronted with a major liquidity surplus as a result

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of the matured government bonds being paid out. This surplus put pressure on

interest rates, which lead to a reduction in interest rates on deposits and loans. With

the new constitutional changes coming up, government authorities are looking into

introducing a new banking regulation on deposits. Each bank would have to make a

standard deposit with the central bank for security purposes. Despite the economic

challenges, the banks are looking very optimistically at the year 2010 and expect

better results than those for 2009.

As of the end of 2009, the Netherlands Antilles appears on the OECD‘s white list,

which has a positive impact on the international financial sector. Another

important development for the international financial sector is the official launching

of the Dutch Caribbean Securities Exchange (DCSX) in 2010. Therefore, at the end

of 2010, the Financial Action Task Force (FATF) will screen the local financial

services sector.

The upcoming constitutional changes, with the proposed debt relief, will make it

tougher for insurance companies to find suitable investment products on the

market. Internationally, central banks act as watch dogs of the insurance industry for

the sole reason that, even though insurance companies are not as volatile as banks,

they must remain fundamentally strong to make sure that their basic function—the

orderly transfer of risk from client to insurer—continues without interruption.

The rising costs in the healthcare sector in Curaçao require new measures to

achieve a manageable system of purchasing health care. This need keeps growing

because of the aging population, which drives up healthcare spending through the

demand side, the shrinking base of the workforce that pays for the costs and the

open-end nature of the insurance policy (with no personal liability or maximum

―consumption‖) for the different groups of insured people with few incentives to

save on costs.

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CHAPTER 1 CURAÇAO’ S MACROECONOMIC PERFORMANCE

1.1. INTERNATIONAL AND REGIONAL DEVELOPMENTS AND THEIR

CONSEQUENCES FOR CURAÇAO

Following the deepest downturn in recent history, global economic recovery is off to

a strong start, but proceeding at different speeds in the various regions. According to

the World Economic Outlook (WEO) of the International Monetary Fund (IMF),

released in July 2010, world economic growth is expected to reach 4¼ percent, a

rather positive output as compared to 2009 with its actual contraction of 0.6 percent.

In most advanced economies, the recovery is expected to remain sluggish by past

standards, whereas in many emerging economies, activity is expected to be

relatively vigorous, largely driven by buoyant internal demand. Supporting the

recovery are easing flows, a turn in the inventory cycle and, importantly, growth-

stimulating policies. Unhealed financial systems and weak public or household

balance sheets are, however, holding back recovery.

U.S.: Recovery Driven by Stimulus vs. Job Creation

A stimulus-led recovery is on the way in de U.S., but private demand remains soft.

Substantial monetary and fiscal easing, alongside other policies aimed directly at the

financial and housing sectors, has contributed to growth. Consumption rose slightly

in the fourth quarter of 2009 (2009Q4) as households continued to rebuild wealth;

reduced inventory draw downs contributed to more than half of growth. During the

same period, net exports also made a modest positive contribution to growth, as the

rebound in global trade and recovery in partner economies boosted exports.

The labor market remains unusually weak. Since the start of the crisis, more than 7

million jobs have been lost and 8.8 million people are involuntarily working part-

time (WEO, July 2010). The rate at which jobs are being lost has slowed

significantly, but employment growth remains negative and the unemployment rate

reached 10 percent by the end of 2009, although it decreased marginally during 2010

Q1. This is a good indication. After all, the sustainability of any economic recovery

comes down to job creation, which in turn gives a boost to consumer spending.

Financial-market strains have continued to ease, but credit conditions remain on the

tight side, particularly for small and medium-sized enterprises with little access to

capital markets.

Some risks to the U.S. economy are the relatively high debt levels for the household

sector and government debt levels that are high, rising and approaching levels that

are unsustainable. Moreover, the expected healthcare reforms entail significant

increases in government spending and potentially even higher levels of debt, while

uncertainty over the passage of environmental legislation and future tax increases

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aimed at deficit reduction pose additional risks to the recovery. Furthermore, not all

banks‘ balance-sheet problems have been addressed—a few important ones remain.

As long as the U.S. is running large budget deficits coupled with a ‗zero interest

rate‘ monetary policy, the dollar can be expected to keep declining in value. A

declining dollar will help to rebalance the global economy away from its

dependence on U.S. consumption for growth, and a weaker dollar puts upward

pressure on all commodity prices, as a result of a flight to safety. Since spiking to

$150 a barrel in the summer of 2008, oil prices remain a risk to both the U.S. and the

global economy. Political unrest in Iran creates an unstable and uncertain outlook for

oil coming from the Middle East (Global Economic Outlook, Deloitte1st Quarter

2010). Despite these problems, 2010 has the potential to be a better year as

compared to 2009, with sales growth returning and profitability performance

surprising many businesses on the upside.

In the WEO, July 2010, U.S. GDP for 2009 was set to -2.4 percent (decline in

output), whereas projections for 2010 indicate a 3.1-percent output growth. The

removal of the policy stimulus will subtract from growth, which will moderate to 2.6

percent in 2011.

Unemployment is projected to remain high in 2010 at 9½ percent, before declining

to 8¼ percent in 2011 as employment growth picks up, and inflation is expected to

remain subdued at 2 percent in 2010 and 1¾ percent in 2011, given continued

economic slack.

Europe: Fragile and Diverse Recovery1

Europe was one of the hardest-hit economies during the global crisis, having entered

the crisis with substantial imbalances. Unemployment in Europe (±10 percent) has

risen in the last two years by 3 percentage points. The continent is coming out of

recession at a slower pace than other regions, and the recovery varies per country

within Europe. Forces holding back the recovery in Europe include sizable fiscal and

current-account imbalances in several Euro-area countries with potentially negative

spillover effects to the rest of Europe, concerns about sovereign solvency and

liquidity in Greece that threaten the normalization in financial market conditions,

unresolved problems in the banking sector, persisting external financing constraints,

vulnerable household and corporate balance sheets and financial-sector

deleveraging.

Factors supporting the ongoing recovery in Europe are the turn in the inventory

cycle, the normalization of global trade and forceful policies.

1 Source: World Economic and Financial Surveys, World Economic Outlook, April 2010

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Europe‘s growth performance is expected to be modest, at 1.3 percent in 2010, and

is projected at 1.9 percent for 2011. However there are differences in outlook across

the region.In advanced Europe, recovery is projected to be gradual and uneven

among euro-area countries. The recovery is expected to be moderate in Germany

and France, where export growth is limited by external demand, investment is held

back by excess capacity and credit constraints and consumption are tempered by

higher unemployment. Smaller euro-area economies, where growth is constrained by

large fiscal or current-account imbalances (Greece, Ireland, Portugal and Spain) are

coming out even more slowly. Outside the euro area, the prospects for recovery in

advanced Europe are similarly diverse. In the UK, the recovery is projected to

continue at a moderate pace, with previous depreciation bolstering net exports even

as domestic demand is likely to remain subdued.

In emerging Europe, growth prospects also vary widely. Economies that weathered

the global crisis well (Poland) and others where domestic confidence has already

recovered from the initial external shock (Turkey) are projected to rebound more

strongly, helped by the return of capital flows and the normalization of global trade.

Economies that faced the crisis with unsustainable domestic booms that had fueled

excessively large current-account deficits (Bulgaria and Lithuania) and those with

vulnerable private or public-sector balance sheets (Hungary, Romania, Baltics) are

expected to recover more slowly, partly as a result of limited room for policy

maneuvers. The euro is depreciating due to lack of confidence in the financial

markets and astronomical budget deficits in some areas.

Two downside risks around the outlook in Europe are: first, market concerns about

sovereign liquidity and solvency in Greece that could turn into a full-blown

sovereign-debt crisis leading to some contagion if unchecked; and second, the

possible dampening in growth as a result of adjustments in fiscal and current-

account imbalances in peripheral economies and, if delayed, a protracted process

punctuated by occasional crises.

The most important task ahead is to strengthen the policy framework to promote

better adjustment mechanisms in good and bad times. Regarding fiscal policy,

credible commitments should be made to debt sustainability (Greece, Ireland,

Portugal and Spain) while proceeding with the planned stimulus measures in 2010,

where feasible (Germany). Monetary policy should remain highly accommodative.

Inflation pressures remain subdued (about 1 percent in the euro area) and it is

appropriate to keep interest rates low to support activity. Issues in the financial

sector call for completion of the restructuring and recapitalization of vulnerable

financial institutions. In addition these financial issues call for stabilizing funding

and reevaluating bank models.

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CIS: Moderate yet Diverse Recovery

The Commonwealth of Independent States (CIS)2 is emerging from the recession at

a moderate pace, although economic prospects across the region differ considerably.

Factors in favor of recovery are higher commodity prices (oil, gas, metals) which are

supporting production and employment in commodity-exporting economies in the

region (Uzbekistan, Turkmenistan), the normalization of global trade and capital

flows, the turnaround in real activity in Russia and its beneficial effect on the rest of

the region in terms of the external demand for employment, capital and goods from

these economies, supporting IMF programs and expansionary domestic policies

fostering domestic demand. Negative forces holding back recovery include the

lingering vulnerability of the financial sector (in Russia) and heavy dependence on

external financing. Real activity in the CIS is projected to expand by 4 percent in

2010, before moderating slightly to 3½ percent in 2011. Risks to the outlook in the

CIS are broadly balanced. For most CIS economies, growth prospects remain highly

dependent on the speed of recovery in Russia, which could surprise in either

direction.

Asia: Robust Recovery and Recoupling

The recovery in Asia has been more balanced than elsewhere, with output growth in

most economies being supported by both external and domestic demand. The factors

supporting this recovery include the rapid normalization of trade, the bottoming out

of the inventory cycle which is boosting industrial production and exports, a restart

of capital inflows into the region and a resilient domestic demand. This resilience is

partly due to the stronger balance sheets (private and public) in place at the onset of

the crisis, a healthy fiscal position (national debt in Asian countries is generally

below 60 percent of the GDP), very limited dependence on external borrowing,

substantial savings held by consumers in these economies, which they could draw

upon to finance higher consumption in response to the fiscal stimulus program, the

quantitative easing that pushed up asset prices—thus quickly restoring the asset

position of households and building consumer confidence—the fact that the

financial sector remained healthy and the implementation of strong and timely

countercyclical policy responses. Asia‘s GDP is projected to grow by 6.9 percent in

2010 and 7 percent in 2011, although significant differences remain within the

region.

At one end of the spectrum are economies with an extreme dependence on exports,

primarily Malaysia and Singapore, along with Thailand and Vietnam. At the other

extreme are India and Indonesia, which are driven more by domestic demand than

by exports. Somewhere in the middle are China and South Korea— though

2 Azerbaijan, Kazakhstan, Russia, Turkmenistan, Mongolia, Uzbekistan

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dependent on exports for growth, they have large domestic economies. The

Philippines has some unique characteristics—its economy is highly dependent on

remittances, which constitute nearly 10 percent of the GDP. Australia and New

Zeeland are commodity exporters benefiting from the pickup in commodity prices,

with a relatively strong domestic demand. In Japan, exports have helped support a

tentative recovery, but domestic demand is likely to remain weak as a result of

several factors, including the new spell of deflation of the yen, continued excess

capacity and a weak labor market.

The prospect for China, the third-largest economy after the U.S. and Japan, is very

promising. Most economies in the Asia-Pacific3 region benefited from China‘s

massive fiscal and monetary stimulus program. Australia was prevented from falling

into a recession thanks to rising commodity exports to China. The Chinese economy

accelerated due to rising state investment in fixed assets and growing private

consumption. Its imports recovered faster than its exports, narrowing the trade

deficit and providing a growing market for other Asian economies. China emerged

as Vietnam‘s largest trade partner in 2008 and the second-largest trade partner of

Thailand and Singapore (in part due to the China-ASEAN Free Trade Area), and

overtook the U.S. as the biggest market for Japanese exports in February of 2009.

The CAFTA creates the world‘s third-largest FTA, with nearly 6 trillion dollars in

combined GDP and zero tariffs on 90 percent of the traded goods. China has also

emerged as a key investment partner, having invested nearly 2.2 billion dollars in

ASEAN economies in 2008. Dependence on China, in fact, may be emerging as the

primary risk for the newly industrialized Asian economies4, although integration

with India is also on the way with the India-ASEAN free-trade agreement signed in

August of 2009. The other trend that will likely gain strength is the growth in EU-

ASEAN trade investment ties. Though integration with the rest of the world will

remain a buzzword for emerging Asia5, the primary focus will likely be on

diversification of trade to reduce risks. No country would want to become overly

dependent on a single economy, whether it is China or the U.S. The rise of China as

a prominent market for ASEAN economies, however, looks unavoidable if the rest

of the world continues to show only slow growth.

Varied policy challenges face the region‘s economies. For those that have depended

on exports to drive growth, the primary challenge will be to deal with the slowing

demand from mayor trading partners like the U.S. and effect a durable rebalancing

toward domestic sources of growth, possibly by means of stimulus measures, which

have played a major role in the recent strength of domestic demand in many of the

region‘s economies.

3 East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself. 4 Hong Kong SAR, Korea, Singapore and Taiwan Province of China. 5 ASEAN, China, India and Newly Industrialized Asian Economies

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In order to keep domestic demand robust, autonomous private demand will have to

strengthen further.

Most of the economies are expected to grow rapidly in 2010. The pace will be set by

China, followed by India. Indonesia has the potential to surprise on the upside.

Growing integration between Asian economies and rising domestic consumption

due to fast-paced growth could prove beneficial in correcting the global imbalances

in trade. It could also benefit the developed world by increasing their exports to the

Asian economies. More importantly, it would imply a diversification of risks. This

could be seen as a movement toward recoupling instead of decoupling.

Middle East and North Africa (MENA): Recovery Due to Higher Commodity

Prices and Government Policy

The MENA region is growing out of its downturn at a good speed. Factors

supporting this recovery are higher commodity prices and external demand as well

as government spending programs. Vulnerable financial sectors and weak property

markets are holding economies like Kuwait and the United Arab Emirates back. The

sluggish recovery in Europe is putting a damper on export growth, workers‘

remittances and tourism revenues in Morocco and Tunisia, although the latest data

suggest that these flows are gradually improving. Considering these and other

factors, GDP in the Middle East and North Africa is projected to grow at 4½ percent

in 2010, edging up to 4¾ percent in 2011. As in other regions, recovery prospects

vary substantially across MENA economies. Among oil exporters, the strongest

performer is Qatar, supported by continued expansion in natural-gas production and

large investment expenditures. Saudi Arabia and Kuwait are expected to grow

thanks to sizable government infrastructure investment. In the United Arab

Emirates, growth is projected to be subdued, with property-related sectors expected

to contract further. In the group of oil importers, Egypt is projected to grow, helped

by stimulative fiscal and monetary policies. Morocco and Tunisia will continue to

grow, assuming that exports, tourism, remittances and foreign direct investment

continue to improve.

One risk to this outlook is that a slower-than-expected recovery in advanced

economies could dampen commodity prices and tourism. Another is posed by the

aftermath of the Dubai World debt crisis. Fiscal policy has played a critical role in

cushioning the impact of the global crisis on the region and in supporting its

recovery. Government investment programs, especially in infrastructure, should

remain in place to boost domestic demand and help cement the recovery. High debt

levels, however, constrain the scope for fiscal stimulus in some oil-importing

economies. Turning to the external sector, current-account surpluses are expected to

widen again as the recovery proceeds. But the recent increases in public spending on

non-energy-related sectors should be helpful in diversifying activity toward these

sectors, rebalancing regional growth and reducing the region‘s current account

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surplus. Nonetheless, further efforts are needed to achieve such diversification,

which will benefit not only the MENA region but the global economy as well.

Africa: Recovery Stronger than After Past Downturns

Sub-Saharan Africa‘s (SSA)6 middle income

7 and oil-exporting economies

8 were hit

hard by the collapse in export and commodity markets in 2009. Despite this, the

region managed to avoid a contraction in 2009. Its growth is projected to accelerate

to 4.7 percent in 2010 and to 5.9 percent in 2011. The region‘s quick recovery

reflects the relatively limited integration of most low-income economies9 into the

global economy and the limited impact on their terms of trade, the rapid

normalization in global trade and commodity prices, and the use of countercyclical

fiscal policies. Remittances and official-aid flows have also been less affected than

anticipated by the recessions in advanced economies. Banking sectors have so far

proved generally resilient and private capital inflows have resumed into the region‘s

more integrated economies. Shocks from the global crisis hit SSA mainly through

the trade channel, with the region‘s middle-income economies being among the

hardest hit. Output in South Africa declined in 2009. Although the rebound in world

trade is supporting recovery, South Africa‘s growth in 2010 will be tempered by

high unemployment, tight credit conditions and the recent strength of the rand.

Strong performance in the non-oil economy allowed Nigeria, the region‘s largest oil

producer, to avoid a substantial slowdown. The recovery of oil prices and stronger

global demand will raise growth for oil-exporting economies. In the region‘s low-

income economies, the slowdown in economic activity was more modest, owing to

their more limited trade and financial integration. Growth in a number of the more

fragile economies even accelerated last year, reflecting mainly stronger policies and

reconstruction assistance following periods of civil conflict, economic instability

and previous external shocks.

Risks to the outlook in the region include a recovery pattern that gives rise to large

swings in commodity prices. Furthermore, official aid flows to the region are subject

to downside risks, given the protracted recoveries of major donor economies and

political uncertainty in several of the regions‘ economies, particularly in West

Africa.

The use of countercyclical fiscal policy in contrast to previous downturns

was a welcome development in the region. As private and external demand

begin to recover, countries will need to rebuild fiscal room, turning from the

near-term objective of stabilizing output to medium-term considerations,

6 Those African countries which are fully or partially located south of the Sahara. It contrasts with North

Africa, which is considered part of the Arab world. 7 South Africa, Botswana, Mauritius, Namibia, Swaziland, Cape Verde and Seychelles. 8 Nigeria, Angola, Equatorial Guinea, Gabon, Chad and the Republic of Congo. 9 Ethiopia, Kenya Tanzania, Cameroon, Uganda and Côte d‘Ivoire.

- 20 -

such as increasing spending on growth-enhancing priorities, including infrastructure,

health, and education. Finally, attracting private capital flows will continue to be a

major policy challenge. More than a third of economies in Sub-Saharan Africa

remain on the margins of international capital markets and dependent on official

forms of external financing. For these economies, promoting trade and financial-

sector development, encouraging domestic savings and investment, raising standards

of governance and strengthening institutions are needed measures to help attract

private inflows on a sustained basis. For the region‘s more advanced economies,

macroeconomic policy will need to take into account the renewed inflows of foreign

capital to avoid overheating10

, excessive appreciation11

and asset-price booms

(period of rapid economic expansion).

Latin America and the Caribbean12: Recovering Faster than Anticipated

The LAC region is posting a strong recovery. Output growth in the region is

supported by both external and domestic demand. Factors supporting this recovery

are accommodative policies, good fundamentals (sound financial systems, solid

balance sheets) and higher commodity prices. However, weak external demand for

tourism from North America and Europe is impeding growth, especially in the

Caribbean, whereas lower remittances are affecting many LAC economies. Against

this backdrop, GDP in the LAC region is projected to grow at 4 percent in 2010 and

2011, although prospects vary considerably across the region. Four country

groupings can be distinguished: the financially integrated commodity-exporting

countries (strong recovery); commodity–importing, tourism-intensive countries

(weak recovery); other commodity-exporting countries (subdued recovery) and other

commodity-importing countries (subdued recovery).

Among commodity-exporting, financially integrated economies are Brazil, with

strong private consumption and investment, Chile, supported by highly

accommodative policies, a recovery in commodity prices and reconstruction,

Mexico, helped in part by the U.S. recovery and Peru (top growth performer), thanks

to favorable internal dynamics and high commodity prices. These economies are

expected to experience a strong bounce back in growth. Tourism-intensive

commodity importers13

are experiencing a weak recovery. These countries were

affected by the global financial downturn through their ties with advanced

economies like the U.S. and Europe, which on their turn suffered an increase in

unemployment. Tourist arrivals declined by double-digit rates in most countries but

10 Economic situation in which growth is occurring so quickly that economists fear a rise in inflation. This

happens when producers are not able to make enough goods and services to meet rising demand, and raise

prices instead 11 Increase value of an asset 12 This section is mainly based on the Regional Economic Outlook, Western Hemisphere, May 2010 13 Antigua and Barbuda, Bahamas, Barbados, Dominica, Grenada, Belize, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and Grenadines.

- 21 -

increased in Jamaica, possibly as a result of support provided by the IMF. Canada,

however, provided tourist arrivals owing to its stronger economic performance

during the crisis. A modest increase of approximately 5 percent in arrivals is

projected for this group in 2010. This, alongside weak foreign direct investment and

unemployment hovering around 13 percent, implies a sluggish recovery for 2010.

Other commodity-exporting economies in the region are experiencing gentle

recovery although there is still considerable variation within this group. For instance,

the rebound is projected to be relatively strong in Bolivia and Paraguay, whereas in

Venezuela the recovery is expected to be delayed and weak, given the ongoing

power shortages. The recovery is also expected to be less strong in other commodity

importers. Growth is picking up strongly in the Dominican Republic, Panama, and

Uruguay. In El Salvador and Honduras, economic activity finally stopped

contracting. Haiti was hit hard by the earthquake with sizable human and economic

losses. Credit growth has been sluggish, although banks‘ capital-adequacy ratios

remain at comfortable levels. U.S. growth is providing some impetus to exports.

However, workers‘ remittances continue to post significant declines, reflecting weak

employment in the U.S. The pickup in commodity prices is also a shock to these

countries. The average external current-account deficit is projected to widen in 2010.

The main downside risks are external to the region, namely the fragility of the

recovery in advanced economies and a potential weakness in commodity prices.

Upside risks include even stronger internal dynamics, which could attract higher

capital flows. Given the region‘s diverse growth outlook, challenges vary widely

across LAC economies. For the financially integrated commodity exporters, the

challenge will be managing the upswing of the business cycle. Countries where

output gaps are closing more rapidly will need to move to a tightening mode ahead

of others. Easy external financial conditions and the resumption of capital inflows

pose additional challenges, like the risk of boom/bust cycles. In this context, a policy

mix favoring a tighter fiscal stance would be appropriate, helping to mitigate risks

from overheating while also stemming currency appreciation pressures. Tourism–

intensive, commodity-importing countries are challenged by the elevated debt levels

and limited access to financing. Efforts to protect vulnerable groups and unlock

growth potential through structural reforms should be priorities in the policy agenda.

For other commodity exporting countries, policy challenges will include avoiding

the perils of pro-cyclicality14

, anchoring macroeconomic policies, and regaining

access to financial markets. Other commodity-importing countries whose room for

macroeconomic stimulus has been exhausted should be prudently saved for

downside risk scenarios.

14 Correlates with the general state of the economy.

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Implications for Curaçao15

Curaçao, being a commodity importer with a relatively substantial tourism sector,

has also been indirectly affected by the global financial crisis. Partly as a result of

the crisis and its effects on developments in the tourism sector, investment and

export in 2009 have been negatively affected.

On the upside, Curaçao will soon be in a unique position due to its new autonomous

status within the Dutch Kingdom. The Netherlands has agreed to implement debt

relief and cancel late payments, subject to a few conditions. As a result, banks have

excess liquidity and are providing personal, mortgage and small business loans

against competitive interest rates. In 2009, the Island Government recorded a budget

surplus after consecutive years of deficit. This is partly due to the introduction of a

Financial Supervision Commission. Moreover, some projects are being executed as

part of the Social Economic Initiative16

, contributing to sustainable economic

development and reducing social disadvantages on the island. The unemployment

rate in 2009 (CBS) was 9.7 percent as opposed to 10.3 percent in 2008, continuing

the downward trend seen since 2006. In 2009, Curaçao was characterized by a

relatively moderate inflation of 1.6 percent, considerably lower than the record-high

7 percent inflation in 2008. The real GDP for 2010 is projected to grow by 0.7

percent as compared to the contraction of 0.2 percent of the GDP in 2009.

Sources:

Deloitte Research publication, Global Economic Outlook,1st Quarter 2010

Deloitte Research Report, Asia Pacific Economic Outlook, February 2010 Open Arms, The Investor‟s Guide 2010

World Economic and Financial Surveys, World Economic Outlook, April 2010

World Economic and Financial Surveys, Regional Economic Outlook, May 2010, World Economic Outlook Update, January 2010

Websites: www.cbs.an

1.2 Macroeconomic Indicators for Curaçao

This paragraph presents an overview of the macroeconomic developments based on

preliminary figures of the national account and an annual business questionnaire

made by the Department of Economic Affairs. The macroeconomic analysis will be

carried out with the Curalyse macroeconomic model.

The figures presented in the table of main macroeconomic indicators are a

combination of actual figures and estimates made by the Department based on

assumptions, and are therefore categorized as preliminary. The figures for 2006,

15 Data from the Central Bureau for Statistics (CBS), the Curaçao Tourist Board (CTB) and Open Arms,

The Investor‘s Guide 2010 16 Data from the Central Bureau for Statistics (CBS), the Curaçao Tourist Board (CTB) and Open Arms, The Investor‘s Guide 2010

- 23 -

2007 and 2008 are actual, while those for 2009 are estimates. The actual figures

presented in this publication may be slightly different from those published in 2009

for the years 2007 and 2008, owing to the fact that those figures where estimates

made by our Department. In addition to the review of 2009 that will be presented in

the following section, the Department will also present two economic scenarios: an

optimistic economic development and a more realistic economic development.

Macroeconomic Review 2009

The overall macroeconomic performance for Curaçao in 2009 contracted slightly by

0.2% in real terms as compared to 2008. This decline can be attributed mainly to the

negative development in the export sector, primarily in the tourism sector. The

decline in investments in 2009 was another factor that impacted the overall

macroeconomic performance negatively. The island‘s consumer price index

remained at a low level in 2009 owing to the moderate international demand for

commodities worldwide.

According to the preliminary figures of the Bank of the Netherlands Antilles and the

questionnaire of the Department of Economic Affairs, private investment declined

by 8% in 2009. This contraction can partially be ascribed to last year‘s decline in

building permits issued and the related estimated values. In addition to the

aforementioned, a great part of the major tourism-related investments have been

made in 2008. The international economic development, caused, among other

things, by the financial crisis, has also led to a reduction in the number of stay-over

visitors in 2009, which was one of the factors that contributed to the postponement

of some tourism projects.

According to our estimates, the export of goods and services declined by 5% in

2009. The main reason behind this is the decline in tourism in terms of stay-over

nights and visitors, mainly in the last quarter of 2009. Another occurrence that has

further strengthened this negative trend in exports is the decline in income generated

by the offshore sector. Besides, the real-estate sector, which in 2007 and 2008

showed a significant increase, also suffered a reverse in 2009, despite the high

exchange rate of the euro versus the dollar. The aforementioned is caused by the

negative impact of the international financial crisis worldwide, combined with the

economic reverse of the Dutch economy in 2009.

According to figures provided by the Bank of the Netherlands Antilles, private loans

and mortgages increased by 6 and 36 percent respectively in 2009 as compared to

2008. The aforementioned increase led to the 0.3-percent rise in imports in 2009,

due to a 3-percent increase in consumption as compared to 2008. The figures

provided by local banks show a 5-percent increase in business loans. The rise in the

number of loans by the business sector did not translate into investments by this

sector in 2009. This can partially be ascribed to the decline in visitor numbers in the

- 24 -

tourism sector, which led to skepticism among investors. Some investments may

still be carried out, depending on developments in the first half of this year, mainly

within the tourism or tourism-related sectors.

Given the estimated decrease in exports and investments, combined with the

marginal increase in private consumption, the real GDP is estimated to contract by

0.2 percent in 2009 as compared to 2008. The decline in gross domestic product will

lead to an unchanged unemployment as compared to 2008.

Table 1.1 Key Economic Indicators

2006 2007 2008 200917

Population and employment

Total population 135,250 137,124 138,642 138,564

Labor force 60,981 61,708 63,021 62,627

Employed labor force 52,050 54,049 56,535 56,582

Unemployment rate (%) 14.6 12.4 10.3 9.7

Nominal figures Curaçao (in millions)

Export of goods and services 2,789 2,875 3,382 3,211

Import of goods and services 3,423 3,789 4,564 4,576

Private consumption 2,918 3,327 3,713 3,826

Private investement 1,282 1,410 1,641 1,510

Real GDP 4,390 4,666 5,080 5,072

Volume mutation (%)

Export of goods and services 8.3 0.1 10.0 -5.0

Import of goods and services 6.4 7.5 12.7 0.3

Private consumption 4.5 10.7 4.4 3.0

Private investement -5,1 6,8 8,9 -8,0

Real GDP 1,5 3,5 2,2 -0,2

Price mutation (%)

Inflation 3.1 3.0 6.9 1.6

Source: Macroeconomic model Curalyse, Department of Economic Affairs

Macroeconomic Outlook

This paragraph presents a forecast of the macroeconomic developments, taking into

consideration expected developments within the main sectors and the

implementation of the economic reforms mentioned in the Social Economic

Initiative (SEI) policy paper, as well as other highly necessary reforms that must be

carried out within the framework of the SEI, aimed at jumpstarting the economy. To

17 Estimated figures

- 25 -

achieve this, huge sums will be invested in, among other things, the island‘s

infrastructure. Owing to the uncertainties regarding Curaçao‘s economic

development in 2010, the Department has chosen to discuss two possible economic

scenarios. The uncertainties regarding the economic development of the local

economy are listed below:

- The realization of the autonomous status within the Dutch Kingdom by

October 10, 2010;

- The implementation of the economic reforms as mentioned in the SEI report;

- The macroeconomic developments of our main business partners (trading

partners);

- The elimination of red tape within the government, with emphasis on

services provided by government entities.

In order to understand the magnitude of the economic effects for each scenario, the

Department made use of the Curalyse macroeconomic model to calculate a baseline

reference path for the period 2010 - 2011. With regard to the reference path a

laissez-faire or unchanged policy is used as basic assumption for the coming year, to

get a general impression of the economic impact. The baseline scenario is used as a

reference path in order to be able to measure the economic effects in the other two

scenarios.

Baseline Scenario

This section presents the assumptions on which the baseline scenario is based. As

mentioned in the previous section, the baseline scenario, against which the other two

scenarios are measured, assumes continuity in policy. The assumptions presented

below are for 2010 and 2011.

In order to understand the economic effect in the baseline scenario, it is imperative

to carefully read the assumptions presented below, since the economic results

presented must be interpreted in this context. The assumptions regarding the

baseline scenario are as follows:

Overall stay-over nights in 2010 will decline by 5 percent compared to 2009,

and increase slightly by 2 percent the following year as compared to 2010.

The main reason behind this assumption is that the Venezuelan market will

keep shrinking until reaching the level of 2007, and then stabilize. In 2011,

the American and Dutch markets will continue to grow and partially absorb

the decline in the Venezuelan market;

The decline in the number of visitors, combined with the larger room

inventory in 2009, will lead to a postponement of investments in new room

inventory in 2010. This will lead to a 4-percent decrease in investments in

2010 as compared to 2009. The assumption for 2011 is that the planned

investments in room inventory for 2010 will partially shift to 2011.

- 26 -

However, owing to the fact that this is a baseline scenario, a conservative 2-

percent investment rate has been used;

The investments that must be carried out within the framework of the SEI

will be neglected;

The effect of the reform measures that must be implemented within the

framework of the Social Economic Initiative will be neglected;

The financial agreement between the Dutch and Antillean governments

within the framework of the Commission Financial Supervision regarding

the debt relief is being implemented;

The Island Territory of Curaçao‘s budget deficit will equal NAf 17 million in

2010, and NAf. 2 million in 2011;

Exports in the non-tourism-related sectors will remain at the same level for

the coming years due to the expected substantial increase in bunkering and

storage activities.

Macroeconomic Impact in the Baseline Scenario

This section presents the economic results based on the aforementioned

assumptions. The economic contraction in 2010 will lead to an increase in

unemployment in 2010, as well as an aftereffect in 2011. The aforementioned,

combined with a further contraction in stay-over nights in the base scenario, will

lead to a further shrinking in consumption. The decline in stay-over visitors will

have a negative impact on the export of goods and services, since export depends

heavily on tourism. Business production will suffer a contraction caused by a decline

in private consumption. The contraction in production, combined with the negative

mutation in the number of visitors, will lead to a decrease in business investments in

the baseline scenario. The results of the decline in visitor nights, strengthened by a

shrinking consumption and falling investments, will lead to a 1.5 percent contraction

in the real gross domestic product in the baseline scenario. The consumption price

index of the baseline scenario is assumed to increase by 1.7 percent as compared to

the previous year (2009).

- 27 -

Table1.2 Baseline scenario

YEAR 2010 2011

Key figures for Curaçao

Prices, % change per year

Export price 2.5 1.3

Wage-rate business 2.4 2.2

Consumption price 1.7 1.3

Quantities, % change per year

Mutation tourism days -5.0 2.0

Exports -3.1 1.0

Imports -2.3 0.2

Private consumption -1.2 0.7

Investments by enterprises 2.0 0.4

Production by enterprises -1.7 0.5

Real growth GDP -1.5 0.5

Employment of enterprises -1.2 0.1

Number*1000

Employment by enterprises -0.5 0.0

Number of unemployed 0.5 0.3

Value in millions NAf

Financial surplus public sector 221.2 204.7

Source: Macroeconomic model Curalyse, Department of Economic Affairs

Macroeconomic Outlook for 2010

This section presents the expected macroeconomic developments for the years 2010

and 2011, based on an optimistic as well as a pessimistic scenario for 2010. Both

scenarios are based on the information obtained by sector experts during several

interviews. This information has been transformed by the Department in

assumptions used as inputs for the Curalyse macroeconomic model. The

assumptions presented below are the same for both years, unless otherwise

mentioned. The assumptions used in the optimistic scenario are as follows:

The overall length of stay of stay-over visitors will increase by 2 percent in

2010 and by 7 percent in 2011 as compared to the previous year;

The number of active working population entering the market each year is

assumed to be around 1000 taking into consideration the graduated;

The implementation of the remaining projects within the framework of the

Social Economic Initiative (SEI) implies an investment of NAf. 60.5 million;

it is assumed that NAf. 40 million will be invested in 2010, and the rest in

2011;

The government budget will show at least a zero deficit in both years, while

the committed investment of NAf 62 million within the framework of the

SEI will be carried out as planned. This investment will be equally spread

over the two years;

- 28 -

Private investments in 2010 will reach the 2007 level, meaning that some

improvement will be seen, but still below the 2008 level. Taking into

consideration the increased private and business loans in 2009;

In 2011, private investments will once again reach their 2008 level;

Government consumption is assumed to increase gradually, owing to the

financial room obtained as result of the debt relief received in 2009;

The mutation of import prices will diminish as result of the anticipated lower

consumption price index of the main trading partners of Curaçao;

Exports in the non-tourism export sector will increase at the same pace as in

2009, due to the expected increase in bunkering and storage activities carried

out by Curoil. In 2011, the export of non-tourism sectors will grow at a

moderate pace of 1 percent as compared to 2010

A slight increase of 1 percent is expected in 2010 in the number of cruise

passengers visiting the island as compared to 2009, while in 2011 the

number of cruise passengers visiting the island will remain at the same level

as in 2010.

Optimistic Scenario: Scenario for 2010

The results based on the above-mentioned assumptions are presented in table 1.3.

The expected increase in business investments, as well as government investments

within the framework of the Social Economic Initiative, will lead to a consumption

increase in 2010. The 2-percent increase in visitor nights in 2010 will also contribute

to the increase in private consumption that year. Unemployment will decline,

leading to an increase in total earnings, which has also contributed to the increase in

consumption. The mitigated growth on the number of visitor nights has, despite the

increase in the non-tourism export, not been enough to prevent contraction of 0.1%

of the export. Business production will rise owing to the investment expansion, the

expected growth within the tourism sector and the increase in private consumption.

A slightly higher consumption-price index (2.1) is expected for 2010 as compared to

2009. The above-mentioned development, combined with a lower consumption-

price index will lead to a 0.7-percent growth in the 2010 gross domestic product in

the optimistic scenario. The number of unemployed has slightly increased despite

the enlarged employment partially owing to the graduated entering the market.

2011 Scenario

For 2011, only one scenario has been calculated, considering that a great majority of

the sectors were not able to provide the information needed by the Department to

present two scenarios. Based on the information provided and taking into

consideration the above-mentioned assumptions, the following economic impact can

be expected.

- 29 -

In 2011, the wages of the private sector will increase at the same rate as in 2010, due

to the moderated economic uplift in the previous year. The increase in stay-over

nights, combined with an increase in the non-tourist sector, will lead to a 3.4-percent

increase in exports. Private investments are expected to increase, owing to

investments made within the framework of the SEI. This increase, combined with

the increase in wages and the expected investments, will lead to a more than 2-

percent increase in private consumption. Business production will increase by 2

percent due to the higher investments and consumption. The increased business

production will lead to a 1-percent contraction in unemployment, as well as a rise in

the import of goods and services, of more than 1 percent. The expansion of the

export, combined with an increase in private consumption and investments, will

contribute to a 1.5-percent growth in Gross Domestic Product in 2011 with a

moderate inflation of 1.7 percent.

Table 1.3 Optimistic Scenario

2010 2011

Prices (% change)

Export price 2.7 1.5

Wage rate business 3.1 3.0

Consumption price 2.1 1.7

Quantities, % change per year

Number of tourist days 2.0 6.9

Exports -0.1 3.4

Imports 1.4 1.6

Private consumption 0.7 2.4

Business investments 6.3 0,5

Business production 0.8 2.0

Real GDP growth 0.7 1.7

Employment by enterprises 1.3 1.4

Number*1000

Employment by enterprises 0.6 0.6

Number of unemployed 0.1 0.0

Value in millions NAf

Financial surplus public sector 290.3 267.0

Source: Macroeconomic model Curalyse, Department of Economic Affairs

Pessimistic Scenario

In addition to the above scenarios, the Department also presents a pessimistic

scenario based on some key assumptions that differ from the general assumptions

for the optimistic scenario mentioned above. In general, many of the assumptions

mentioned for the optimistic scenario also apply to the pessimistic scenario. The

following list only includes those that differ for this scenario:

Investments made within the framework of the SEI will be 20 percent

below in the figures in the optimistic scenario. This assumption is made

after taking into consideration which projects have financial requests in

- 30 -

their final phase and are about to enter the implementation phase, and

which are already being implemented;

The overall stay-over nights of tourists visiting the island will increase by 1

percent in 2010;

Private investments will be 20 percent below the optimistic scenario, back

to NAf 24 million instead of NAf. 30 million.

The result of this scenario is presented in table 1.4. The increased in wages,

combined with the 1-percent growth in the tourism mutation as compared to 2009,

will lead to a marginal enlargement of 0.3 percent in private consumption. Despite

the higher tourism mutation and the export growth in the non-tourism related sector,

the export of goods and services will remain more or less at the same level owing to

the relatively high export prices. Nevertheless, the increase in private consumption,

combined with the higher private investments will lead to an increase in business

production. All by all, the contraction in the export of goods and services, combined

with moderate increases in investments and private consumption, will lead to a

marginal increase in gross domestic product.

Table 1.4 Pessimistic scenario

2010

Prices (% change)

Export price 2.7

Wage rate business 3.0

Consumption price 2.0

Quantities, % change per year

Number of tourist days 1.0

Exports -0.5

Imports 0.7

Private consumption 0.4

Business investments 5.5

Business production 0.4

Real GDP growth 0.3

Employment by enterprises 0.9

Number*1000

Employment by enterprises 0.4

Number of unemployed 0.1

Value in millions NAf

Financial surplus public sector 276.8

Source: Macroeconomic model Curalyse, Department of Economic Affairs

1.3 Labor market developments in Curaçao

Recently, the Welfare Ordinance was adapted, giving the government department in

charge of guiding job seekers to the labor market (Department of Work and Income)

more tools to implement their policies. Major changes include the option of

(temporarily) reducing or completely denying welfare benefits and requiring

- 31 -

participation in work-reintegration schemes. The basic principle behind the updated

Ordinance is reintegration of job seekers into the labor process, implying that

entitlement to welfare benefits should be seen as a temporary condition and that

efforts should concentrate on providing or sharpening skills that make job seekers

employable. Given this principle, participation in trainings and work-reintegration

schemes is mandatory and those addicted to illegal substances are required to

participate in rehabilitation programs. According to the Department of Work and

Income, there are approximately 4,200 job seekers registered. In addition, there is a

total of 5,900 social-security recipients registered at the Department of Work and

Income. Unfortunately, only a fraction (less than 20 percent) will be able to (re-

)enter the labor market after a short intervention (skills training or motivational

training). The larger part of job seekers registered at the Department of Work and

Income lacks the necessary skills, training and competencies to integrate

immediately into the labor market.

During 2009, several training and reintegration programs were started which are still

being implemented. One major obstacle is the relatively high number of people that

fail to complete these trainings. One way to cope with this is to adapt the programs

by providing specific services, such as child care and personal coaching.

Another shortcoming of the labor market is the prolonged shortage of technical

workers in sectors such as construction and tourism. This is especially noticeable at

the refinery and the dry-dock company. In the hotel sector especially, the different

cooking positions seem harder to fill.

The Social Economic Initiative program (SEI) also includes several programs with a

direct link to the labor market. One that is particularly interesting in this respect is

one project introducing child-care facilities with flexible hours. The opening hours

of the child-care facilities will be extended beyond business hours and also include

weekends. This project‘s target group is comprised of single mothers and the target

sector is tourism.

Another relevant project is ―Horeca training job seekers‖ which is aimed at training

the unemployed for jobs in the tourism industry. On-the-job training and

apprenticeships are important parts of this project‘s approach. Both projects are

implemented in close cooperation with the private sector.

Also within the SEI is the Knowledge Centre Vocational Training Private Sector

Curaçao foundation (Kenniscentrum Beroepsonderwijs Bedrijfsleven Curaçao), with

as main purpose to provide for continuous and permanent consultation between the

vocational education system and the private sector in order to qualitatively match

supply and demand on the labor market. The Knowledge Centre Vocational Training

Private Sector Curaçao is a joint initiative of, among others, the hospitality and

construction-sector associations in response to the gap between labor supply and

demand. However, the Knowledge Centre Vocational Training Private Sector

- 32 -

Curaçao‘s span of interest covers all economic sectors. The Knowledge Centre

Vocational Training Private Sector Curaçao acts as an independent counterpart for

both the private sector and vocational schools and plays an important role in the

process of determining the final qualifications of vocational schools.

Results of the Labor-Force Survey

Below is a graphical overview of the different unemployment rates. From 2005 on,

all the rates have been declining steadily except in 2008, when the youth

unemployment rate went up by 1.5 percentage points. Unfortunately, female

unemployment remains higher than both general and male unemployment, with a

discrepancy of more than 3 percentage points in 2009 as compared to their male

counterparts. The youth unemployment rate decreased further during 2009, reaching

24.7 percent but is still more than twice the general unemployment rate, which is

already considered high by international standards.

Figure 1.1 Selected Unemployment Rates

Source: CBS

Table 1.5 Labor Market Indicators 2005-2009

2005 2006 2007 2008 2009

Employed 51,343 52,050 54,049 56,535 56,582

Unemployed 11,392 8,931 7,659 6,486 6,045

Labor force 62,735 60,981 61,708 63,021 62,627

Total population 135,474 135,250 137,124 138,642 138,546

Unemployment rate (%) 18.2 14.7 12.4 10.3 9.7

Participation rate (%) 46.3 45.1 45.0 45.5 45.2

Youth unemployment rate (%) 44 37.8 24.8 26.3 24.7

Source: CBS, Labor Market Survey 2009

The number of people employed in 2009 remained nearly unchanged as compared to

2008. The number of unemployed persons, however, declined sharply by 441

5

15

25

35

45

2005 2006 2007 2008 2009

% Selected Unemployment Rates

Unemployment rate Youth unemployment rate

Female unemployment Male unemploument

- 33 -

persons, which caused the unemployment rate to plummet to 9.7 percent of the labor

force. The labor force dropped by almost 400 persons last year, while the total

population declined by almost 100 persons.

A remarkable development is that while the number of employed persons barely

increased, the survey shows that the number of inactive ones increased by more than

750. This is especially troublesome because the number of Curaçao-born workers

decreased by 1,059 in 2009, according to CBS data from the Labor Force Survey.

On the other hand, workers born in the Netherlands and the rest of the world (except

the Netherlands Antilles and Aruba) increased by almost 1,270. A possible

explanation, given the negative net migration (-641), can be emigration of local

workers.

A global trend that is also gaining popularity on Curaçao is part-time work. Working

part time is very widespread in the Netherlands, even above average as compared to

other European nations. Results from a recent survey on part-time work on Curaçao

conducted by George Consult (a local HR consultancy company) suggest that there

is some negative perception regarding this approach to work. Some employers even

fear that if they allow some employees to work part time, the majority will follow.

Many companies lack policies and procedures on part-time work, making it also

difficult to execute part-time work as part of a Human Resource tool. In this respect,

the Island Government of Curaçao is a trendsetter. In 2004, the Island Government

introduced a policy on part time work enabling public servants to shorten their

working hours by 20 percent. Until now, less than one percent of public servants

make use of this possibility. This may be due to unfamiliarity with this policy and/or

due to the corresponding loss of income.

During the last weeks of 2009, the central government of the Netherlands Antilles,

in close cooperation with the island governments, executed the Brooks Tower

project, which was aimed at unregistered and illegal aliens. The objective of the so-

called Brooks Tower project was for the government to gain insight into the number

of undocumented persons working on the islands of the Netherlands Antilles

(St.Maarten & Curaçao) and to reduce the number of non-registered persons. These

persons were offered the chance to register for a one-year temporary residence

permit if they met certain conditions. Approximately 3,400 people registered under

the Brooks Tower project. Exact data on how many requests were approved are not

yet available.

The implementation of the Labor Force Development Policy and Structural Proposal

that was drafted and approved by the social partners in 2008 has encountered some

difficulties. However, there has been some progress in the implementation of the

projects, especially those that are part of the SEI program. In order to implement the

proposal in a more coherent way, the dialogue between social (tripartite) partners

was resumed early in 2010.

- 34 -

1.4 Fiscal & Monetary developments in Curaçao

Introduction

The public finances of the island government of Curaçao reflect a budget surplus of

NAf. 90 million. Table 1.6 provides an overview18

of government revenues and

expenditures for the year 2009. Significantly, all the actual figures included in the

Island Government of Curaçao‘ financial report are on a cash basis and all the

projected figures are on a transaction basis.

Table 1.6. Financial report of the Island

Government of Curaçao for 2009 (x NAf. mln)

2009

(projection)

2009

(actual)

Total revenues 1202.1 1186.1

Current revenues

-Tax revenues

*Taxes on income and profits

Profit tax 198.0 222.6

Wage tax 486.0 487.6

Income tax 3.0 2.7

*Tax on property 30.0 30.9

*Taxes on goods and services, including motor vehicle taxes 36.5 43.7

*Other taxes 16.0 11.2

-Non-tax revenues 234.4 192.9

Capital revenues 3.0 2.5

Grants 185.2 192.0

Total expenditures 1195.1 1096.1

Current expenditures

Wages and salaries 294.4 282.5

Pension premiums 89.9 84.7

Goods and services 370.4 341.9

Subsidies, including to public companies 50.7 50.0

Transfers 189.6 184.1

Interest payments 158.6 136.3

Capital expenditures 41.5 16.6

Operational balance 7.0 90.0

Source: Department of Finance, Island Territory of Curaçao.

18 Due to rounding, totals may not add up

- 35 -

The differences between the budgeted amounts and the actual amounts for the year

2009 will be analyzed below. In addition, the debt position at the end of 2009 will be

discussed.

Revenues

Total actual government revenues in 2009 were NAf. 16 million lower than initially

estimated. The profit tax contributed favorably to revenues. In 2009, the government

collected NAf. 222.6 million in profit tax, totaling NAf. 24.6 million above

anticipated revenues. The higher profit tax revenues were due to the fact that most

companies submitted their profit tax form on time, and that various companies

maintain a financial year that does not coincide with the calendar year.

Wage-tax revenues also contributed favorably to the budget surplus. Despite the

slight contraction of the economy in 2009, there was an increase in the amount of

workers. The government collected NAf. 1.6 million more in wage tax than

estimated.

Despite higher than expected revenues from profit and wage taxes, total tax revenues

fell short of estimates. This was mainly caused by lower revenues on the waste-

product tax (Afvalstoffenbelasting) and non-tax revenues. Lower revenues from

―fees, charges and sales,‖ as part of the non-taxes category, were due primarily to

lower amounts collected on ground lease in the amount of NAf. 3.4 million. The

receivable-accounts records for ground lease have been streamlined in order to

guarantee a timely collection of these revenues.

Expenditures

Year 2009 saw a positive development in overall government spending.

As shown in table 1.6, total government expenditures were NAf. 99 million lower

than estimated. This under spending of the budget was mainly caused by lower

expenses on the budget items ―interest payments‖ and ―goods and services‖.

Expenditures for interest payments were NAf. 23 million lower, made possible by

advance payments received from The Netherlands in connection with the debt-relief

program. In 2009 the Island Territory of Curaçao received a total of NAf. 307.3

million in debt-relief funds from the Dutch government.

In addition, the budget item ―wages and salaries‖ recorded an underspending of

NAf. 11.9 million. The underspending on wages and salaries came as a result of

unfilled vacancies in civil-service positions and the fact that not all civil servants

received their wage supplement in 2009. Another factor was lower spending on

pension premiums, amounting to NAf. 5.2 million.

- 36 -

Debt Position 2009

The financial position of the Island Territory of Curaçao improved in 2009. The

total debt at the end of 2009 recorded a decrease of NAf. 261.9 million compared to

the end of 2008, reaching a level of NAf. 2,647.8 million.

Monetary Developments

The Central Bank of the Netherlands Antilles (BNA) is responsible for the monetary

policy. The main goal of the policy conducted, 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. In order to preserve confidence in the exchange rate the BNA aims

at maintaining a level of official reserve (excluding gold) worth three months of

merchandise imports. The developments in the aggregate money supply, the private

credit extension and the official foreign reserves position of all commercial banks

are the most important indicators used by the BNA as a basis for policy adjustments.

Monetary Policy in 200919

The most important instruments used by the BNA in conducting its monetary policy

are the requirement for commercial banks to maintain a positive total Net Foreign

Asset position , the bi-weekly auctions of certificates of deposit (CD‘s) and the

reserve requirement.

During the first nine months of 200920, the BNA conducted a laid back monetary

policy. The BNA‘s main monetary-policy instrument, the reserve requirement, was

reduced monthly until reaching a level of 11 percent. The reserve requirement

implies that all domestic banks make a non-interest-bearing deposit to a blocked

account with the BNA. In addition, the BNA offered bi-weekly tenders of CD‘s at a

competitive interest rate. This laid back monetary policy was induced by, at one

hand, the fulfillment of the official reserves target and on the other hand the fact that

the excess liquidity in the banking system did not conduce to excessive credit

extension by the domestic banks. Therefore, the pledging rate, the official interest

rate of the BNA, remained unchanged at 1.0 percent during the first nine months.

Monetary Indicators

At the end of 2009, net foreign assets recorded an increase of 24.3 percent compared

to December of 2008. This increase was attributable to increases in both the

commercial banks‘ and the Central Bank‘s net foreign assets positions. The net

foreign assets held by the commercials banks and the Central Bank increased by

76.9 percent and 8.9 percent, respectively.

19 Source: Quarterly bulletin, Bank of the Netherlands Antilles, 2009 20 The available monetary figures regard the first nine months of 2009

- 37 -

In 2009, the net domestic assets registered a decrease of 0.7 percent compared to

2008. This decrease was a result of the declined demand for liquid assets by the

governments due to the implementation of the debt-relief program. The debt-relief

program contributed to a decrease in the government securities held by the

commercials banks and an increase in the banking system.

Interest Rate Developments

In 2009, the domestic interest rates (i.a.. passbook savings and mortgages)

experienced some adjustments in line with the international interest- rate

developments, as shown in figure 1.2.

Figure 1.2. Domestic Interest rates commercial banks

Source: Data derived from the statistical tables of the Quarterly Bulletin of the Bank of the Netherlands Antilles

Outlook for 2010

Monetary policy will remain focused mainly on maintaining the external stability of

the Netherlands Antilles guilder. Therefore, policy adjustments will depend on the

expected monetary union formed between St. Maarten and Curaçao. As of October

10 St. Maarten and Curaçao will share a common currency and Central Bank as

autonomous countries within the Dutch Kingdom. In such a monetary union a high

degree of policy coordination between the two countries is a precondition to an

effective monetary policy.

1.5 Balance of Payments in 2009

Preliminary data released by the Central Bank of the Netherlands Antilles show that

in 2009 the current account deficit totaled NAf 699.3 million. This is an

improvement in the current account of approximately NAf 891 million compared to

2008. The improvement in the current account can be ascribed mainly to the

increase in current transfers from the Dutch government in accordance with the

0%1%2%3%4%5%6%7%8%9%

jan feb mrt apr mei jun jul aug sep oct nov dec

Passbook savings

Time deposit 12 months

Mortgages

Current account overdrafts

- 38 -

debt-relief program for the Netherlands Antilles and the smaller deficit on the trade

balance. The combined capital and financial account deteriorated in 2009, but at a

slower pace compared to 2008. In 2009, the net foreign reserve increased by 535.3

million compared to 2008.

Source: Data are derived from the statistics of the Central Bank of the Netherlands Antilles *Negative numbers indicate an increase

Current Account

In 2009, the trade balance deficit narrowed down as compared to 2008, as imports

dropped by 15.3 percent, reflecting the lower import bill. The lower imports in 2009

were mainly due to the lower international average oil and food prices and lower

merchandise imports, as the overall demand shrunk. Merchandise imports on

Curaçao dropped by over 19 percent, reflecting lower demand from the e-zone

(former Free Zone) and tourism sector.

Receipts from merchandise and service exports dropped by 9 percent in 2009, from

NAf 5,626.4 million in 2008 to NAf 5,093.4 million in 2009. The decrease is a result

of, i.a. lower revenues from bunkering activities, lower foreign exchange receipts

from the tourism sector and a downfall in the construction sector, reflecting a

decline in average international oil prices, bunker volume sold, stay-over tourism

and construction activities. In 2009, foreign-exchange receipts from the tourism

sector on Curaçao declined by 4.4 percent.

In contrast, receipts of the international financial & business sector, the refining fee

paid by PDVSA, and for government services and other services grew by 3.3

21 Data for the BOP are compiled for the Netherlands Antilles. No separate BOP data are compiled and

published for Curaçao. The figures presented in the table are therefore for the Netherlands Antilles. Nevertheless, if necessary, developments particular to Curaçao will be mentioned.

Table 1.7 Balance of Payments of the Netherlands Antilles21

NAf mln. 2007 2008 2009

Current Account -1,062.9 -1,561.0 -669.3

Trade balance -3,351.6 -3,563.2 -3,216.4

Service balance 2,329.0 2,118.2 1,979.1

Income balance 5.2 -74.1 -172.7

Current transfers -45.6 -42.0 740.8

Capital Account 218.7 244.9 200.7

External financing of the private sector 976.5 1,579.9 873.7

Direct investment* 425.3 449.1 196.3

Loans and credits* 700.5 1,257.4 866.1

Portfolio investments* -149.3 -126.6 -188.7

Change in reserves* -277.3 -371.6 -535.3

- 39 -

percent, 7.2 percent, 16.2 percent and 5 percent respectively in 2009, compared to

2008.

In 2009, the income balance deteriorated by NAf 98.6 million compared to 2008.

The income balance worsened as interest income on portfolio and other investments

dropped substantially while payments increased.

Compared to the deficit in the income balance, the current transfer balance improved

by almost NAf 700 million due to the transfer of funds by the Dutch government in

implementation of the debt-relief program for the Netherlands Antilles.

Capital and Financial Account

In line with the worsening current account, the net foreign debt of the private sector

increased by NAf 873.7 million in 2009, albeit at a slower pace compared to 2008.

The increased debt is mainly due to a worsening of the loans and credits balance,

and partially the direct investment balance, by NAf 866.1 million and NAf 196.3

million respectively. In contrast, the portfolio investment balance improved by NAf

188.7 million.

The deterioration of the loans and credit balance is a consequence of the fact that

mainly domestic companies withdrew funds from their foreign accounts and foreign

assets were repatriated by financial corporations. Additionally, net trade credits

extended dropped by almost NAf 109 million. The worsening of the loans and

credits balance was mitigated by the net repayment of loans abroad.

The worsening of the direct investment balance is due to increased foreign direct

investment in the Netherlands Antilles. In 2009, capital transfers dropped by NAf

44.2 million compared to 2008 as a consequence of a drop in development-aid funds

received from the Netherlands.

Foreign-Currency Reserves in 2008

As a result of developments in the current, capital and financial accounts in 2009,

net foreign reserves expanded by NAf 535.3 million compared to 2008. This

increase consisted of a NAf 85.5 million rise in net foreign assets held by the Central

Bank and a NAf 449.8 million expansion of net foreign assets held by commercial

banks.

- 40 -

Balance of Payments in 201022

For 2010, we expect the current account deficit to stay at about the same level as

during 2009, as a result of, i.a. a substantial capital inflow resulting from the Dutch

debt-relief program for the Netherlands Antilles. Additionally, we expect a smaller

deficit on the trade balance in view of the fluctuating prices of oil and food on the

international market, the drop in the volume of imported goods due to expected

economic developments and the decline in investment activities, mainly in the

tourism sector, due to expectations regarding developments in the tourism industry.

Furthermore, we expect the service-balance surplus to contract as a result of the

expected decline in service exports.

In terms of exports, we expected a small decrease in volume, driven by lower

demand due to the expectations regarding the economic performance of the main

trading partners and expected higher competition in the region.

Furthermore, we expected both the direct investment balance and the loans and

credits balance to worsen in 2010—the latter due to, among other things, a decline in

net trade credits.

1.6 Social Economic Initiative Program

Introduction

The Social Economic Initiative (SEI) was founded with the goal to introduce a

number of projects, reforms and measures to be implemented in the period of 2008

through 2010, with a possible extension into 2011, to ensure sustainable

improvements in the economic structure and social backlogs on Curaçao. Moreover,

the SEI pays special attention to managerial reforms, considering the new

constitutional status of the island as Pais Kòrsou. Furthermore, there are a few

initiatives aimed at improving the functioning of the labor market to meet economic

as well as social objectives.

The SEI is funded by the Dutch government and managed by USONA. Originally,

the Dutch government earmarked an amount of NAf 60.5 million as funding.

However, it was agreed with the Dutch government that an additional 30 percent of

the development fund for 2008, 2009 and 2010 could be used for the SEI. Two-

thirds of this amount consist of funds allocated under ‗Other‘ on the yearly budget,

with the remaining one third being half of the budget set for ‗Institutional

Reinforcement and Governmental Force‘23

. As a result, the total budget for the SEI

22 Quarterly Bulletin, Bank of the Netherlands Antilles, 2009

Statistical tables of the Quarterly Bulletin, Bank of the Netherlands Antilles, 2009 23 ‗Institutionele Versterking en Bestuurskracht‘

- 41 -

projects amounts to approximately NAf 123.6 million24

, including the additional 30

percent of the yearly development fund, for a total of 127 projects. A considerable

number of the projects financed by the SEI fund is co-financed with funds from the

Island Government, the private sector and other donors.

In brief, the main purpose of the SEI projects is to provide the island of Curaçao

with a healthy starting position as of October 10, 2010, by stimulating economic,

social and managerial progress. Economic progress is measured in terms of annual

increases in the GDP and decreases in the unemployment rate. The aim is to have an

annual growth of at least 4 percent and unemployment-rate decreases of at least 2

percentage points per year. Social progress is defined as achieving structural

improvements in the quality of life of citizens with critical social needs (measured

by the UNDP Human Development Index) and solving critical bottlenecks in the

educational system, especially for vulnerable groups (measured by their

participation rate in education and the labor force). Managerial progress is defined as

supporting the new government in order to realize the goals set for Pais Korsou,

reducing government debt to an acceptable level and gaining control over the

government‘s funds.

Although an extensive number of projects and initiatives qualify as SEI

projects/initiatives, this paragraph presents merely seven. These are economic

projects and were chosen for this article because of their clear, direct and significant

contribution to the above-mentioned economic development indicators.

In the framework of stimulating economic progress, a set of policy fields have been

defined. Each potential project/initiative must contribute to restructuring the

economy and fit into at least one of these policy fields in order to qualify for the SEI

fund:

Research on long-term economic development, setting a long-term vision

for the island

Improvement of the investment climate by restructuring regulations and

procedures

Promotion of entrepreneurship, especially small businesses

Investments in the infrastructure on behalf of strong economic

development

24 Depending on exchange-rate fluctuations

- 42 -

Projects/Initiatives

Long-Term Economic Strategy

The objective of the long-term Economic strategy is to plan, implement and monitor

a strategy to turn Curaçao into an island that distinguishes itself from others in the

region and worldwide in order to achieve a competitive position.

Currently, the sector generating the most domestic income is tourism. This sector is,

however, subject to many exogenous influences. Hence, a plan is needed to further

develop other sectors, both existing and new ones, creating more sources of income

and thus sustaining economic progress and becoming more self-sufficient. The

research on long-term economic development will result in specific plans and

measures to maintain a diversified economy, which on the long run will result in

more economic activities, an increased GDP, less unemployment and a better quality

of life for the citizens.

Such a plan is being formulated. The strengths, weaknesses, opportunities and

threats of (existing and potential) economic sectors are being analyzed in order to

brainstorm on new ideas to further develop the different sectors.

The total costs budgeted for this project equal NAf 1 million and are financed

100 percent by the SEI-fund. The project caters to setting a long-term vision and fits

into the first policy field, that of research on long-term economic strategy.

Curalyse Upgrade

Curalyse is a macro-economic model used for research on the effect of different

influences and measures on key economic variables (GDP, unemployment, poverty)

in the past, present and future. This model is used to quantify short and long-term

economic development. The model was developed in 1996 and has been updated

regularly. Nevertheless, considering the new constitutional structure as of October

2010 and the new challenges it presents, the model has become outdated and needs

to be modified and upgraded in order to be representative of the economy. The

importance of this project lies in the fact that an appropriate model is needed to

facilitate reputable research.

At the present time, this project is in the execution phase. An amount of NAf

320,000 has been budgeted for the project, which is also being financed 100 percent

by the SEI-fund. As the model is used for research, this project too fits in the first

policy field.

Tourism Marketing

The tourism sector, measured by the number of arrivals (stay-over and cruise) and

hotel occupancy has been expanding over the last years, but experienced a downturn

at the end of 2009 as a consequence of external factors such as the worldwide

- 43 -

economic depression and regulatory developments in Venezuela (one of our main

markets).

The objective was, initially, to increase visitor arrivals, length of stay and tourist

expenditure. However, due to decreasing travel spending as a consequence of the

weakened world economy, the Tourism Marketing project is now an effort to

minimize their negative effects by promoting Curaçao as a competitive destination

in North America (the North-East coast), Venezuela, Colombia, Brazil, the

Caribbean (Trinidad & Tobago, Jamaica and Barbados) and Europe (the

Netherlands, Germany, Belgium, Sweden and Finland). Significant efforts have

already been made to achieve an increase in the amount of annual visitors, which

resulted in the above-mentioned increase in arrival numbers prior to the downturn at

the end of 2009. Increases in the number of arrivals have positive effects on GDP

and employment in the tourism sector as well as in spin-off sectors.

An amount of NAf 24.3 million is budgeted for the Tourism Marketing Plan over

the period of 2009-2011, of which NAf 9 million is financed by the SEI fund. The

remaining NAf 15.3 million is financed by the Island Government with funds

obtained from the collection of hotel room tax. With tourism being one of the pillars

of the economy, the project is conditional for the investment in infrastructure as

many other investments in infrastructure are on behalf of the tourism sector.

Competition Policy

The first phase of this project consists of research and analysis of possible

bottlenecks to the competition policy and presenting suggestions to solve these in

order to achieve the desired policy. The second phase consists of actually

formulating the competition policy through legislation and proposing a Competition

Authority. The establishment of a Competition Authority is the ultimate goal, in

order to keep good track of the market system and supervise compliance with the

competition law.

The competition law is meant to combat price agreements, abuse of power and

unfair competition that result in welfare losses. Moreover, clear-cut rules are

essential to attract new business (investments). Therefore, the establishment of a

Competition Authority and the adoption of competition legislation will improve the

investment climate.

The project is currently at the research and analysis phase. It is predicted that by the

end of 2010, the Competition Authority will be a fact.

An amount of NAf 390,000 is financed through the SEI. Co-financing is for an

amount of NAf 360,000 by the Island Government, thus covering the total costs of

NAf 750,000.

- 44 -

Red Tape Project

Currently, the process of obtaining a (business) license is time-consuming due to the

complicated procedures and organizational structure. Red tape hampers economic

activity and might even discourage the establishment of new businesses

(investments). The ‗red tape‘ project is intended to reduce the inefficiencies in the

governmental sector regarding admission procedures by 25 percent, by automating

and streamlining these. The reduction in red tape will contribute to an improvement

in the investment climate, which in turn will lead to an increase in investments and

thus more economic activities. This is translated into real GDP growth.

Research and analysis on how to reduce red tape are currently being carried out.

These are budgeted at NAf 90.000, with 100 percent financing by the SEI.

Curaçao Economic Development Board (CEDB)

The CEDB is charged with promoting Curaçao as an attractive investment

destination for potential local and foreign investors. The board is responsible for the

development of investment programs to promote investment in target sectors and

facilitate the establishment and expansion of businesses looking to invest on the

island. The activities of the board contribute to the promotion of entrepreneurship,

with more economic activities and real GDP growth as a result.

The total amount budgeted for the establishment and activities of the CEDB is NAf

2.2 million, of which 50 percent is financed from the SEI-fund and the other NAF

1.1 million by the Island Government.

Rumbo pa Trabou

The Rumbo pa Trabou project (literally translated: heading towards employment)

has the objective of reducing unemployment and supporting upward mobility on the

labor market for the low-skilled. This kind of dynamism on the labor market

provides for new entries at the lower level of the labor market.

The project consists of three subprojects i.e.: improving the employability of the

unemployed by working on their work motivation and communication skills;

matching the qualifications and skills of potential employees to the demand on the

labor market through on-the-job training; and monitoring and coaching the newly

employed during a period of 3 months by catering to their specific needs, e.g. job

coaching, budgeting courses and family coaching (daycare for children).

The project prepares the unemployed and low-skilled only for jobs with a supply

surplus on the labor market, using a semi-custom made program starting at the initial

skills of the potential employee and working up towards the specific demands of the

potential employer.

- 45 -

Currently, a pilot is being run: ten to twenty people are being prepared for jobs in

housekeeping and about ten as security officers. Ultimately, a total of 450

unemployed and low-skilled citizens will be trained and schooled within a period of

three years. The importance of this project lies in the fact that it contributes to the

increase in participation of the population and, as a result, improves their quality of

life. In addition, unemployment and consequently government expenditure on social

provision will decrease. The total budget for this project is NAf 5,236,000, financed

by the SEI-fund.

- 46 -

CHAPTER 2 SECTORAL DEVELOPMENTS IN ACCORDANCE

WITH DEFINED FUTURE ECONOMIC COURSE

2.1 PRODUCTION SECTORS

2.1.1 AGRICULTURE, LIVESTOCK, AND FISHERIES25

Introduction

The Agriculture, Livestock and Fisheries sector makes a modest contribution (less

than 1 percent) to the annual GDP. The sector is characterized by its labor

intensiveness, extensive means of production, small domestic market and the cheap

supply of products from abroad. Interest in working in the sector is weak because of

factors such as low earnings as compared to the hard working conditions and the

misconception that working in this sector is mainly for the low-skilled. Furthermore,

production in the sector is subject to many external factors such as weather,

seasonality and oil prices.

According to the Department of Agriculture, Livestock and Fisheries, 92 to 93

percent of locally consumed food is imported; only 7 to 8 percent is locally

produced. One of the main reasons for this, in case of agricultural products, is the

fact that the climate is not suitable to produce all crops demanded. Another is the

limited supply of labor in the sector as a whole. However, by encouraging more

suppliers in the sector it may be possible to increase production and therefore save

foreign exchange. Furthermore, diversification through the production of more high-

value products and niche products, processing of agricultural commodities and

export is needed.

The Department of Agriculture, Livestock and Fisheries is responsible for the

development and implementation of agricultural policies. It is the objective of the

department to increase the contribution of the sector to the food supply in Curaçao in

the short run, create and retain employment in the sector by encouraging small and

medium businesses on medium term and stimulate the production of high-value

products on the long run with the goal of generating exports. Currently, actors in the

Agriculture, Livestock and Fisheries sector can import needed equipment free of

import taxes. Moreover, technical and labor assistance are being provided below

cost to actors in the sector.

25 The information in this chapter is mainly based on data provided by the Department of Agriculture, Livestock & Fisheries unless otherwise stated.

- 47 -

International Developments and Trends

Agriculture

According to information provided by the World Bank26

, agricultural prices have

declined in 2009 compared to their peak in June of 2008, but remain high when

compared to the lows reached in the early 2000s. The recent fall in prices relative to

previous peaks reflects not only the lower oil prices, which is a key cost component

in the sector, but also the larger stockpiles of key agricultural commodities (rice,

maize and wheat) resulting from favorable harvests and area expansion of these

commodities. These price fluctuations have moderate effects on the demand for

agricultural products though, since the price elasticity is very low. Price fluctuations

have more impact on demand in developing countries as compared to developed

countries, as household expenditures on agricultural products take up a larger share

of household income in developing countries.

Livestock

After the price escalation in the first half of 2008 and the subsequent sharp drop,

meat prices remained stable in 2009. The negative impact of the economic crisis on

consumers‘ purchasing power lead to a weakened demand for meat, but global meat

production also slowed down in 200927

.

In the period of November-December 2009, the global price of dairy products

continued a strong recovery from their bottom levels in the first part of 2009. From

the summer onward, the pace of the increase was as swift as the preceding drop from

their peak levels in 2008. From August to December 2009, the Oceania export

prices, indicative of the world market situation, increased by two thirds (butter

prices doubled!). This climb in prices resulted from the continued improvement in

global demand, especially in South-East Asia, as economic activity moderately

picked up, and from the tightening milk-supply situation in all the main production

areas. Milk output in 2009 remained below 2008 levels in the US and Australia, and

was lower than expected in New Zealand due to adverse weather patterns.

Fisheries

Fish stocks are scarce. This is a global phenomenon caused by excess fishing and

decade-long use of wrong techniques. As a result, aquaculture is becoming an

international trend. China, for instance, rears more fish in basins than are caught

26 Source: The World Bank (2010). Global Economic Prospects 2010 27 Source: European Commission‘s January (2010) Update on Price Developments in International Agricultural Commodities Markets

- 48 -

there in nature. The scarcity of fish stocks and the use of aquaculture have led to

substantial increases in fish prices28

.

An important development for the food sector as a whole is that short-term food

security concerns have subsided and, as a result, most countries have reduced or

eliminated export bans and other export restrictions that were put in place during the

commodity price spike of 200829

. The reduction in export restrictions is an important

development in this regard, considering the island‘s dependence on food imports for

reasons mentioned previously. This development increased the competition between

locally-produced and imported commodities.

As mentioned above, the Agriculture, Livestock and Fisheries sector is traditionally

characterized as an extremely labor-intensive sector. However, modern technologies

make it possible to decrease the demand for labor in the sector. The freed manpower

is then used in the agricultural industries and other sectors. Unfortunately, the

agricultural industry has not yet been developed as a (sub-)sector in Curaçao. The

possibilities to develop this sector are being explored.

Another world trend is that men of labor-force age are migrating to urban areas and,

as a result, the number of women and older employers (over 60 years of age) is

increasing in the sector. This trend is not seen in Curaçao though, since the island‘s

small size makes job migration to urban areas irrelevant. According to information

at the disposal of the government‘s Agriculture, Livestock and Fisheries Service, the

average age of workers employed in the sector is relatively high (> 45 years) though,

compared to other sectors. This is because interest in working in the sector is

particularly weak among youngsters.

Concerning the weather, 2009 had a rather wet start of the year for the region, but

rainfall had diminished considerably by May. Since early May, rain abandoned the

region and a period of severe drought followed, lasting to the end of June. The

months of June to November were drier than usual. November 2009 was one of the

driest November months in the last fifty years. The reason why the island got less

rain than usual is the presence of a moderate El Niño30

.

Macroeconomic and Sectoral Developments in Curaçao during 2009

Based on information received, as well as on its own observations, the Department

of Agriculture, Livestock and Fisheries states that the amount of actors in the sector

remained approximately the same as compared to 2008. Some enterprises

discontinued their business but there were others entering the sector. Data collected

28 Source: G. van Buurt, Dienst LVV (2001). Visserijbeleidsplan Eilandgebied Curaçao 29 Source:The World Bank (2010). Global Economic Prospects 2010 30 Source: Press release Meteorological Service of the Netherlands Antilles and Aruba (www.weather.an)

- 49 -

by the Central Bureau of Statistics (CBS) indicate that in 2008 there were 727

people employed in agriculture, fishing and mining. No data for 2009 was available

up to the time of this publication. Considering the above-mentioned statement by the

Department of Agriculture, Livestock and Fisheries, the number of people employed

remained approximately the same in 2009.

Trade in local agriculture products diminished in 2009 as compared to 2008,

according to the Department of Agriculture, Livestock and Fisheries. Their

conclusion is based on the observed need to import products in 2009 that are

normally not imported, especially fruits and vegetables. The decrease in trade is a

result of the decrease in production in this sector. The relapse in production is, in the

case of agriculture, caused by weather influences and pests. In the case of livestock,

it is caused by theft of goats and sheep and STIVECU‘s delay31

in setting up the

intended pig farm. In the case of fisheries, it is caused by the increase in fuel prices.

As a consequence of the decrease in production, competition in the sector was

brought to a minimum in 2009, whereas normally competition is fierce since the

products in this sector are homogeneous and the market comprises mainly small

consumers. Moreover, there are not any forms of cooperation in the sector; each

actor brings his products to the market individually.

Agriculture

Agriculture in Curaçao consists of relatively small farms growing fruits and

vegetables, a practice better described as horticulture. These farms concentrate

mainly on the island‘s east and west sides and grow about 26 varieties of fruits and

vegetables, such as eggplant, leaf lettuce, cassava, coriander, hot and bell peppers,

cucumbers, melons, okra, papaya, parsley, radish, beet root, spinach, onions, sweet

potatoes and watermelons. Farms on the east side produce mainly fruits and

vegetables that can grow on soil water. Farms on the west side grow fruits and

vegetables that are dependent on rainfall, like corn, peanuts, squash and the West-

Indian cucumber. The Department of Agriculture, Livestock and Fisheries has

approximately 350-400 clients on the east-side and 250-300 on the west-side that

make use of their services.

The year 2009 was characterized as a relatively dry year, resulting in a yield

decrease for certain fruits and vegetables (based on observed import of products that

are usually not imported). The presence of diseases also contributed to the yield

decrease in the sector. However, an increasing demand for fruits and

vegetables is being observed, caused by the new healthy-living culture

adopted from other parts of the world. This translates into an expansion of

the agricultural area and a variety of vegetables being grown32

. In 2009, the

31 Association of Livestock of Curaçao 32 Source: Interview (June, 2010) with the Head of the Agriculture Department at the OBNA

- 50 -

Department of Agriculture, Livestock and Fisheries invested NAf 175,000 in a new

tractor. The delivery, however, took place in 2010. In addition, there were

NAf 20,000 in private investments financed by OBNA33

(table 2.1).

Livestock

The livestock sector on Curaçao consists mainly of goat and sheep farming. The

animals are bred and farmed for meat, which is one of the activities of the

Department of Agriculture, Livestock and Fisheries. The Department of Agriculture,

Livestock and Fisheries farms pure-breed animals and rents them out to private

farmers for breeding purposes, to increase the stock.

Compared to 2008, there are little or no developments observed in this sub-sector.

According to observations by the OBNA, this is because sales are stable. Compared

to 20 years ago, however, a trend can be observed. The Department of Agriculture,

Livestock and Fisheries has seen a decline in the number of slaughters over the

years, to about 1,700 animals per year at present, while the weight of the cattle has

increased to an average of 9 to 14 kilos per animal. Nevertheless, these

developments have not resulted in either an increase or a decrease in the production

of meat. The decrease in slaughters is caused by the decrease in the amount of

animals as a result of theft and the fact that some former actors in the sector have

discontinued operations because of that. Moreover, the price of feed has increased

dramatically to roughly NAf 1.50 per kilo. Feed is imported from Jamaica, Trinidad,

Venezuela, Colombia, USA, Canada and even Europe (grass)34

. Since the closing

down of the local Continental Milling company, which used to produce feed from its

own waste products, feed needs to be imported. It is clear that the price of feed

fluctuates with fuel prices.

It is furthermore estimated that the slaughter of animals at Parera and Barber, which

are the legal slaughterhouses, only accounts for approximately 50 percent of the

animals slaughtered for meat. The other 50 percent is done illegally35

.

OBNA estimates that approximately 800 people are employed in the livestock

industry and that this amount has also remained relatively stable over the years. In

2009, the Department of Agriculture, Livestock and Fisheries invested an amount of

NAf. 200,000 in this (sub-)sector for the import of purebred animals. The delivery

however, was done in 2010.

Besides the investments by the Department of Agriculture, Livestock and Fisheries,

there were private investments financed by OBNA for an amount of NAf 10,237

(table 2.1).

33 Development Bank Netherlands Antilles 34 Source: Interview (June, 2010) with Experts from the Department of Agriculture, Livestock and

Fisheries (Dienst-LVV) 35 Source: Interview (June, 2010) with Experts from the Department of Agriculture, Livestock and Fisheries

- 51 -

Fisheries

The fisheries industry in Curaçao consists of the so-called traditional fishing. Fish

are caught along the shore or in the open sea up to 12 miles from the shore.

Department of Agriculture, Livestock and Fisheries estimates the yearly catch at

approximately 200 metric tons36

This is a fierce decrease as compared to two

decades ago. However, the catch has been stable for some years now. There is a

seasonal pattern in the variety of catch: from March to July, it consists mainly of

dolphin-fish (dradu); from August to September, of demersals, mainly red snapper;

and from October to December mainly wahoo (mula) is caught.

The Department of Agriculture, Livestock and Fisheries estimates the number of

fishermen at 100 people working full time in fisheries and another 150 fishing on

part-time base. The average price of fish has increased by approximately NAf 3,- per

kilo in 2009 compared to 2008. This is a result of the increase in fuel prices.

Moreover, vessels with European engines suffered from the strong increase in the

euro-dollar exchange rate, seeing the price of engine parts increase significantly.

Investments in this (sub-)sector by the Department of Agriculture, Livestock and

Fisheries consisted of building and improving slipways at fishing ports.

Unfortunately, the numbers for 2009 could not be given. Private investments

financed by the OBNA in 2009 were for an amount of NAf 173,000 (table 2.1).

Table 2.1 shows the amount of investments financed by the OBNA in 2008 and

2009. The total amount of investments increased slightly in 2009 as compared to

2008. The investments in agriculture/horticulture were intended to buy equipment to

increase production rather than to expand, since expansion is practically impossible

due to the scarcity of land. Investments in livestock were made to buy animals.

Private investments in livestock are rather scarce because of the frequency of animal

theft. Investments in fisheries were mainly to purchase vessels.

Table 2.1. Investments in agriculture, livestock and fisheries

Investments in NAf # projects # jobs created

Sub-sector 2008 2009 2009 2009

Horticulture 69,000 20,000 1 3

Livestock 45,000 10,237 1 3

Fisheries 44,640 173,000 8 16

Total 158,640 203,237 10 22

Source: OBNA

36 Source: Logistics Support Group commisioned by Directorate of Economic Affairs(2008). Contourplan voor Maritiem Beheer en Duurzaam Gebruik van de Kustzone in de Dutch Caribbean

- 52 -

Expectations for 2010 and Beyond

On the international level, it is expected that the increase in demand for food

products will resume in the context of an improved economic outlook for this year,

especially demand from forceful countries like China and India which are going

through periods of high economic growth. As income rises, the consumption of

staple foods, which is relatively income-inelastic, will fall further whereas

consumption of meat, which is relatively income-elastic, will rise37

. Moreover, there

is an increasing demand for prime agricultural products for the production of

biofuel. It is expected, though, that future generations of biofuel technologies will

rather rely on organic waste instead of prime agricultural products.

According to the World Bank38

, food prices are expected to remain broadly stable in

real terms over the medium to longer terms. On the one hand, the strong link

between energy and food prices—the positive correlation between food and oil

prices, plus the demand for agricultural products for biofuel—will exert upward

pressure on prices. On the other hand, the continued gains in total factor

productivity, which tend to be strong in agriculture, should constrain production

costs and thus put downward pressure on food prices.

It is therefore expected that world prices will remain high, posing opportunities for

the local market in Curaçao. Combined with the political decisions in Venezuela to

diminish/restrict export, the higher prices of foreign products create possibilities to

increase the sale of local produce. On the other hand, high fuel prices will also cause

the price of local products to increase, and as a result cut the margin between the

prices of local and imported products. One of the strengths of local products is their

freshness, flavor and the fact that local products has a longer shelf life than imported

products. Marketing policies to increase the demand for local products should focus

on these facts. Moreover, provided that demand will increase, possibilities to

increase production need to be explored.

The Department of Agriculture, Livestock and Fisheries will continue with its policy

to raise and diversify the local food supply to anticipate the unstable demand and

supply in the world which result in fluctuating prices. Specifically, the policy is

geared towards stimulating the sector by improving services rendered to the sector.

Financing will come from the regular budget and from USONA funding.

On the short run, the prospects for the sector in Curaçao are that production of local

food (fruits, vegetables, meat and fish) will rise slightly, since the market is

saturated: most products that can be produced locally are already being produced to

satisfy local needs, and the demand for other products that are not being produced on

37 Source: FAO (2006). Food Security and Agricultural Development in Times of High Commodity

Prices 38 Source: The World Bank (2010). Global Economic Prospects 2010

- 53 -

Curaçao but which can be produced, is limited. Innovative production techniques for

crops for which the climate is not suitable should be explored. However, the opening

of new hotels, like the Hyatt in 2010, and restaurants pose possibilities of increased

demand for this sector.

Agriculture

The Department of Agriculture, Livestock and Fisheries makes regular investments

to improve the infrastructure, sale facilities and services to the sector. As mentioned

previously, the tractor bought in 2009 was delivered in 2010. Moreover, the

Department of Agriculture, Livestock and Fisheries has observed some private

investments being made in this (sub-)sector. Furthermore, SOLTUNA39

has invested

an amount of approximately NAf 350.000 in a greenhouse of approximately 2,000

square meters. This greenhouse is expected to be operational by August of 2010 and

produce vegetables for the local market with possibilities to export to countries in

the region. Greenhouses have a higher yield per square meter as compared to

outdoor growing. It is therefore expected that production, employment and export in

agriculture will increase. SOLTUNA is planning the construction of another

greenhouse in the near future.

Livestock

As mentioned previously, the department invested an amount of NAf 200,000 in

animals for breeding to be used by private farmers, and these were delivered in

2010. The department plans to invest another NAf 200,000 in the near future. The

investments in purebreds increase the quality of the animal stock. These purebreds

will also provide descendants. These investments are therefore expected to boost

cattle breeding and the production of meat for the local market on the long run.

Fisheries

The private investments in fisheries are mainly to buy vessels already in use and

therefore do not result in fleet expansions. There is furthermore no need to expand

the fleet, since the probability of increasing the total catch is close to zero.

Investments by the Department of Agriculture, Livestock and Fisheries were spent

on improvements in infrastructure and sale facilities for the (sub-)sector.

Possibilities to boost the (sub-)sector lie in the development of a (semi-)industrial

fishery posing possibilities of export to the region, and maybe even Europe.

39 Stichting Ontwikkeling Land- en Tuinbouw Nederlandse Antillen

- 54 -

2.1.2 OIL SECTOR

International Developments in 2009

The price of oil products on the international market fluctuated strongly during

2009. Figure 2.1 shows a varied trend starting at $35 per barrel in January of 2009,

and ending at $74 in December 2009. Since April of 2009, the price has remained

stable above $50 per barrel. Further analysis of international prices indicates that

during the last quarter of 2009, the price of crude oil on the international market

fluctuated within the range of $70-80 per barrel. (See figure 2.1.)

Members of the Organization of Petroleum Exporting Countries OPEC are

convinced that a $75 price per barrel of crude oil is fair. According to oil experts,

investments are profitable whenever the price of crude oil fluctuates above the range

of $70 to $75. Therefore, several investment projects in the world have been

suspended due to the fact that for some time during 2009, the oil price on the

international market actually fluctuated below the range of $70-75 per barrel40

.

There are many factors that have contributed to the alternating trends of the price of

crude oil and derivatives on the international market: In the first place, OPEC41

cut

its daily oil production. According to a Reuters survey, OPEC has made 81 percent

of its pledged 4.2 million barrel per day reduction. It is worth mentioning that

Russia, a non-OPEC member that can be considered an important energy

powerhouse, exceeded Saudi Arabia‘s daily oil production. OPEC has no control

over Russia, which is free to set its own production quotas.

Besides, there were persistent uncertainties regarding the total recovery of the world

economy. The local governments of both the USA and the euro zone invested

millions of dollars and euros in their economies in order to stimulate their recovery.

Meanwhile, the world economy showed slight signs of improvement. However, the

euro zone had to deal with rising debt and credit worries. World demand for crude

oil and oil derivatives on the international market showed a sharp fall. In their

September 2009 bulletin, OPEC members called 2009 a disastrous year, in terms of

world demand for crude oil and oil derivatives.

Oil speculators, on the other hand, are convinced that the recession will come to an

end in the near future and therefore the prices of crude oil and oil derivatives will

increase. Worth mentioning is the fact that credit worries in the euro zone pushed up

the value of the US dollar against the euro.

40 Source: Wetenschap.infonu.nl 41 Organization of Petroleum Exporting Countries

- 55 -

Lastly, the EIA42

reported a decline in world oil inventories. There exists suspicion

that oil refineries used stored-up crude oil instead of buying new production.

According to EIA, de huge fall in oil production is due to the fact that the majority

of oil fields and oil-producing countries in the world have reached their peak

production. One must take into consideration that the planned investment in the oil

sector was suspended due to the world financial crisis. Special attention should be

given to the fact that rising oil prices were accompanied by an increase in gold

prices, due to speculators‘ seeking refuge in precious metals. The price development

of crude oil on the international market is illustrated in Figure 2.1. Figure 2.1. International crude-oil price development

43

Source: WTI (West Texas Intermediate)

Prospects for 2010

According to the EIA, there will be a steady increase in oil prices in 2010. At the

time of this publication, the price already hit $84 a barrel. The forecast is that the

price of oil will keep on rising during 2010. Some oil experts speculate that in 2010

the price of crude oil on the international market will reach $100 per barrel. Non-

OPEC members such as Russia, Canada and the United Kingdom are expected to

increase their production by 600.000 barrels per day. OPEC, on the other hand, has

raised its projection for oil demand growth for 2010 by 100.000 barrels per day. The

optimism of both the EIA and OPEC is based on expectations that in 2010 the world

economy will fully recover and, as a result, world demand for crude oil and oil

derivatives will increase.The International Monetary Fund (IMF) expects the world

economy to grow in 2010. However, the growth of the emerging and developing economies,

especially China, India, Brazil and Russia will exceed the growth of the world‘s advanced

economies such as the USA, Japan and the euro zone.44

42 Energy Information Administration 43 Source: Energy Information Administration (Spot price FOB by estimated export volume) 44 Source: World Economic Outlook 2010

$ 0.00

$ 20.00

$ 40.00

$ 60.00

$ 80.00

$ 100.00

Jan Feb Mar Apr May Jun July Aug Sept Oct Nov Dec

Oil price development 2009

$ a barrel

- 56 -

The Local Oil Refinery in 2009

The oil sector is an important pillar of the local economy. There are approximately

1,000 people directly employed at the oil refinery. In addition, there are between 300

and 500 jobs created through maintenance work done by private contractors.

Furthermore, there is a correlation between the refinery and the harbor: less

production at the refinery implies less activities or income for the harbor.

The oil refinery, owned by Refineria di Korosu (RdK), has a maximum production

capacity of 320.000 barrels daily. The oil refinery is being operated by Petroleos de

Venezuela (PdVSA) through a lease contract that will expire in 2019. The refinery

processes mainly light crude and heavy crude oil (medium crude oil in moderate

amounts).

The year 2009 was an interesting year for the local oil refinery due to the many

challenges encountered. The economic crisis had a negative impact on the

performance of the local refinery; the estimated daily production in 2009 was

200.000 barrels. At the time of this writing, the official figures on actual daily

production in 2009 have not yet been audited.

Furthermore, it is worth mentioning that environmental activists are putting pressure

on the local refinery to meet the established environmental standards.

During 2009, the oil refinery exported oil products to several countries.

The main export markets are shown in Figure 2.2:

Figure 2.2 Export destinations in percentages per country

Source: Refineria di Korsou

The three main export markets are:

The Caribbean

0%10%20%30%40%50%60%70%80%90%

100%

% of the export

- 57 -

Central America and

Venezuela.

Local Oil Refinery’s Prospects for 2010

The year 2010 is expected to be a turbulent year for the local oil refinery. At the

time of this writing, the oil refinery is encountering many problems with the CUC‘s

(BOO) energy supply. The main aim of the CUC project was to supply electricity to

both the oil refinery and Aqualectra45

.

Mid 2009, CUC reported that the company was facing technical problems and, more

importantly, financial limitations that prevented them from properly dealing with

these. Since then, the latter resulted in several utility failures experienced by both the

ISLA refinery and Aqualectra. Today, the refinery has been down since March 1,

2010, awaiting utility provision to be resumed. Starting up the CUC installations is

crucial to the oil refinery‘s continuity. Negotiations are taking place for a full

restructuring of the CUC project, which may include a takeover of 51 percent of the

CUC shares from the current Japanese (Mitsubishi and Marubeni/TAQA)

shareholders.

Distribution (Curoil NV)

Curoil NV is a 100 percent state-owned enterprise. It is the sole distributor of oil

products on the island, including the supply of some oil products to Aqualectra‘s

production unit. Moreover, for strategic reasons, Curoil operates four gas stations on

the island and an additional one on behalf of a third party. Curoil NV depends

mainly on the oil refinery, which is its main supplier of oil products.

The year 2009 has been an interesting one for Curoil NV. There have been several

developments in the (inter)national oil segments such as:

Fierce competition in the bunkering and aviation sectors: Curoil NV

encountered strong competition from other suppliers in the region,

especially Trinidad & Tobago, Panama, Jamaica and Sint Eustatius;

Adjustments for the environmentally friendly use of energy, for example

the introduction of Low-Sulphur Gasoil

Global expansion: Curoil NV has expanded its customer base. Curoil NV

now delivers products to several international clients, especially in the

Dominican Republic.

International adjustments with special attention to the preservation of

mankind and the planet: Therefore, efforts are being made to stimulate the

use of alternative energy: Curoil NV has started a project in cooperation

with Aqualectra, Refineria di Korsou and FAPE to analyze the possibilities

to generate fuel from algae.

45 The local supplier and distributor of water and electricity

- 58 -

According to Curoil NV, the company has the following strengths:

Acceptable diversity of products and services

High-quality oil products: local oil products meet international standards

(ISO 9001 and ISO- 8217)

The limited storage capacity can be considered a weakness for Curoil N.V.

However, Curoil NV is working towards an expansion of their storage capacity by

building more tanks.

Curoil NV‘s local fuel-distribution market consists of four segments:

The local transportation market (including Bonaire);

The aviation market;

Bunkering and

International oil sales.

The Local Market Including Bonaire

Curoil NV used to offer three main products for the local vehicle market: Mogas 92,

Mogas 95 and gas oil. The local government installed a commission to study the

possibility of introducing one single type of gasoline and one type of gas oil. Mid

2009, the delivery of Mogas 92 to local vehicle users was stopped. In 2010, the sale

of Low-Sulfur Gasoil was launched. Figure 2.3 indicates fuel sales on the local

market including Bonaire during 2008 and 2009.

Figure 2.3 Fuel-oil sales

46

Source: Curoil NV

46

Clarification: The fuel-sales figures for 2009 have not been audited.

0

50,000

100,000

150,000

200,000

2008 2009

Fuel sales 2008 & 2009 in liters

Gasolin

Gas oil

- 59 -

It is essential to mention that it is the local government that stipulates the price of oil

products for the local market. In 2009, the local government adjusted fuel prices on

a monthly basis until September. As a result, there was no similarity between local

and international fuel prices. At the end of 2009, the local government assigned the

Bureau Post & Telecommunication (BTP) as the temporary regulator of energy

prices.

Aviation Market

Jet fuel is mainly sold to airplanes that visit our island transporting tourists, but

some airlines are making use of technical stops for refueling on the island. As

already mentioned, Curoil NV encountered huge competition in the aviation sector.

However, the primarily figures indicate a 18.8-percent growth in jet-fuel sales

during 2009, in comparison with 2008. (See Figure 2.4.)

Figure 2.4 Sales of jet fuel in 2008 and 2009

Source: Curoil NV

Bunkering and International Oil Sales

The international business in oil products grew in 2009. The management of Curoil

NV is aware of the importance of international sales and globalization and therefore

wishes to expand their customer base. Concrete actions are being taken (especially:

seminar attendance by professionals, networking, construction of tanks, hiring of

floating storage etc.) in order to meet the demands of the customer.

Prospects for Curoil N.V. in 2010

Due to several factors, a setback in sales is expected for 2010 in comparison to 2009.

As already mentioned, the government did not adjust fuel prices between September

2009 and April 2010. The expectation is that prices will not be adapted on a regular

120

130

140

150

160

170

2008 2009

Sales of jet fuel liters in 2008 and 2009

liters

- 60 -

basis, as was the case in 2009. This implies that Curoil NV has to pre-finance the

community, which puts a very heavy burden on the company‘s revenues.

Additionally, there are also the problems with the BOO power plant that led to a

standstill in the production of fuel products at the refinery. This in turn has a

negative impact on Curoil NV‘s local bunkering activities; after all, there were fewer

ships mooring at the harbor for the transport of fuel products. In addition, the

refinery (PdVSA) had to import products to keep delivering to Curoil NV, but

introduced higher prices to compensate for transport costs of the fuel, which affects

Curoil NV‘s competitiveness, especially on the international market. As long as the

standstill at the refinery continues, the possibilities for a full recovery of Curoil NV

will be hampered.

2.1.3 UTILITIES

International Developments

Once the world comes out of the current recession and the economic activities pick

up again, the supply of fuel will not be able to meet the demand. Thus, it is

inevitable that the oil price will go up significantly over the medium to long-term.

One of the biggest threats to a sustainable economic recovery according to experts is

Peak Oil. Peak Oil does not mean that we are running out of oil reserves—crude will

be around for decades. However, 'Peak Oil' implies that we are dangerously close to

peak global oil production. 'Peak Oil' also means that rather than experiencing a

burst in oil supplies as many expect, from here onward we will witness sharp

declines in global flow rates. In a nutshell, the era of cheap energy is over and the

price of crude oil will rocket higher over the coming decade47

.

Add to this the big effort being made and the pressure put, especially on

industrialized countries, to lower their CO2 emissions and become more

environmentally friendly, and we will find that more and more countries are

investing heavily in renewable (green) energy like wind energy (farms), solar energy

(panels), hydro energy and biomass. A lot of money is also being invested

throughout the world in research and development of renewable energy. According

to the UNEP (branch of the UN), in 2009, a total of 140 billion US dollars was

invested in renewable energy, in both application and research areas. Based on

societal, technical and economic reasons, utility companies around the world are

upgrading their electrical grid to be ―smart‖. They are moving away from carbon-

based power generation and implementing renewable energy, and in doing so

contributing to a sound ecological system. ―Smart grid‖ is a term generally used to

describe the integration of all elements connected to the electrical grid with an

47

Source: www.peakoil.com

- 61 -

information structure offering numerous benefits for both the providers and the

consumers of electricity48

.

Analyzing the Year 2009

For 2009, Aqualectra showed negative financial results. This was influenced

by the following factors:

Table 2.2 Factors that influenced the financial result for 2009 Comment

Water sales There was an increase of 5.3 percent as compared to 2008 in the sales

of water

Electricity sales There was an increase of 2.3 percent as compared to 2008 in the sales

of electricity

Adjustment of the water rate

charged

There was a reduction of 26 percent in February and then an increase

of 5 percent in September 2009

Adjustment of the electricity

rate charged

There was a reduction of 10 percent in February and then an increase

of 19.5 percent in September 2009

High fuel prices Fuel prices were very volatile in 2009. Aqualectra was not able to

fully pass through the fuel costs and this lead to capacity and efficiency deficits

Unregistered use of water The unregistered use of water is estimated at approximately 27 percent

Operational costs A 4-percent rise was reported as a result of imported inflation

Capital investments These equaled NAf. 25.9 million, below the figure for 2008 (NAf.

26.1 million)

Source: Aqualectra

Table 2.3. Utilities in 2008 and 2009

2008 2009

Electricity sales (kWh) 633,700,000 648,400,000

NAf per kWh (Average) 0.5807 0.62055

Water sales (m3) 9,400,000 9,900,000

NAf per m3 (Average) 13.74 10.48

Source: Aqualectra

Local Developments

In 2009, Aqualectra started the process of refinancing the Company. The refinancing

will guarantee a good starting position for the Company as regards financing,

allowing it to finance the multi-million investments to be made between 2010 and

2014, thus guaranteeing supply for the coming years. Based on a bond issue carried

out under the supervision and guidance of the Central Bank of the Netherlands

Antilles, Aqualectra managed on December 23, 2009, to realize a loan of 240

million guilders at 6 percent per annum, with a repayment period of 30 years. With

these funds, Aqualectra can: (i) pay back the remainder of the debt to the consortium

48

Source: www.smartgrid.com

- 62 -

of banks, facilitated by the National Investment Bank [N.A.]; (ii) buy the

preferential stocks of Aqualectra from Marubeni/Taqa Corporation, held at present

by Aqualectra, and as such Marabeni/ Taqa Corporation is no longer the owner of

these stocks; (iii) pay to Curoil and PDVSA a substantial part of the overdue debts

for fuel supplies to Aqualectra.

Another important development regards community awareness. There is more

awareness and involvement of the population and interest groups. People are willing

to do more towards energy saving and the use of alternative energy. There‘s still a

lack of information among the population as to which technology individuals can

use to produce energy and under which conditions the energy produced may be sold

to Aqualectra.

The government is working on an energy policy that should be ready this year. This

policy will make it possible for third parties to produce and provide for their own

energy, and also make it possible for them to sell energy to Aqualectra.

In December of 2009, Aqualectra signed a power-purchase agreement with NU

Capital for the delivery of 30 MW. This agreement means an expansion of the two

wind parks that currently produce energy. The agreement entails the renewal and

expansion of energy production by the wind parks. This project will, besides making

the supply of energy more reliable, also contribute to the reduction of yearly of CO2

emissions by 64,000 tons.

This is an important step for Aqualectra in the direction of green energy.

Aqualectra also signed a contract in 2010 with Wartsila (Finland) for the expansion

of the diesel plant at the Dokweg with two units, each with 5.3-MW capacity. This

expansion will increase the diesel plant‘s capacity from 37.5 to 48.1 MW. The

expansion should be completed in 2010.

In 2009, the daily demand for power on Curaçao was between 125 and 130 MW.

Aqualectra has utility plants at Dokweg and Mundu Nobo, as well as the BOO plant

on the Isla Refinery‘s premises and the windmill parks at Tera Kòrá and Playa

Kanoa. Last November, the Caribbean Electric Utility Service Corporation,

(CARILEC) received funding from the International Development Bank (IDB) to

the tune of US$ 668,000 or J$59,452,000. The funds will assist CARILEC in

achieving the strategic objectives of promoting energy efficiency and the use of

renewable energy in the electricity sector in the Caribbean. CARILEC received

funding specifically to conduct benchmark studies for a three-year period, which

will provide technical data and performance indicators to help utilities improve their

energy efficiencies. The funding will also be used to develop a prototype Power

Purchase Agreement (PPA) to help encourage the deployment of renewable energy

technologies by public and private-sector entities such as hotels and governmental

agencies. Another component of the program, which will benefit from the IDB's

financing, is capacity building and training programs in energy audits, carbon

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markets (including carbon-credit trading and carbon finance projects), and biofuels

development. The Program will be executed by CARILEC in collaboration with the

IDB and its Sustainable Energy and Climate Change Initiative Unit.

Recently, Aqualectra and Curoil signed an agreement with FAPE to conduct a pre-

study on the development of sustainable diesel from algae. This study and its result

will be of no benefit to Aqualectra. The diesel in question is for automotive use.

Thus, its goal is to replace diesel produced from oil. Aqualectra does not use this

type of diesel for its operation and, even if that were the case, the question remains

whether enough of it can be produced locally to satisfy Aqualectra‘s needs. The

main or only reason why Aqualectra is involved is for the project‘s funding.

Outlook for 2010

The government is working on an energy policy which will make it possible to

develop the use of renewable energy in Curaçao. This will bring about a new

economic sector and new activities, thus creating new jobs. This policy will also

enable the government to determine how much of its energy production can come

from renewable energy, thus reducing our dependency on foreign fuels, improving

energy security and slashing carbon emissions. This last factor can be used by the

tourist sector to do more in the area of eco-friendly tourism (ecotourism).

The introduction of a regulator is in the making. Several tasks are laid aside in the

new energy policy for the regulator. In preparing for the coming of the Regulatory

Board, in December of 2009 the Central Government signed an agreement with the

government of the Island Territory of Curaçao through which the Bureau

Telecommunications & Post (BT&P) will have oversight over the production and

distribution of water and electricity. Also BT&P will assist Curaçao in developing

policies and a regulatory framework

Smart Grid is a term generally used to describe the integration of all elements

connected to the electrical grid with an information structure, offering numerous

benefits for both providers and consumers of electricity.

Smart grid is intended to reduce electricity consumption, empowering consumers to

manage energy and save money without compromising their lifestyle. Deploying a

smarter grid can help Curaçao realize the great promise of renewable energy sources

to help meet our energy appetite. Countries all around the world are deploying their

country‘s energy policy based on the smart grid philosophy and Aqualectra should

also be headed in that direction.

The latest developments regarding the fact that BOO cannot deliver electricity to

Aqualectra will have its effects on Aqualectra. On the long run, Aqualectra will be

operating at maximum capacity and have no reserve capacity left. Should any of its

production units fail, this would cause outages and lead to load shedding of the

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available capacity. The BOO (Build Own and Operate) installation is owned and

operated by a consortium of companies, among which Aqualectra, owning 49

percent of the shares. The BOO serves as the refinery‘s utility plant and is also

supposed to deliver a certain amount of MW to Aqualectra at a very low rate for

resale to its clients. The BOO supplies Aqualectra with more than 10 percent of the

MW that Aqualectra sells to its clients. But Aqualectra will be able to balance this

loss as soon as its new windmill parks become operational next year. The new

project will generate more then what Aqualectra currently receives from BOO, thus

making Aqualectra less dependent on BOO and fluctuating oil prices.

2.2. CONSTRUCTION

International developments: US and Netherlands

Even though the economy in the United States has slowly begun its recovery, the

construction sector is still facing difficulties. The residential construction sector was

especially hard hit and after years of decline its recovering is slow. The

nonresidential part of the sector however, is still performing negatively. According

to the American Institute of Architects (AIA) 2010 is projected as another weak year

for nonresidential construction. During 2009, construction sector payroll losses

accounted for 25 percent of total losses in the US economy. Besides the job losses

there were also employees that have been cut back to part time, salary freezes and

measures such as involuntary unpaid leave. Not surprisingly constructions‘ share in

GDP was cut to half in 2009 and is expected to fall even more in 2010, according to

an AIA report. Fortunately, the outlook for 2011 is much better - the US

construction sector will then finally reap the benefits of the economic recovery - and

is projected to register growth again.

The year 2009 has also been tough on the Dutch construction sector and the outlook

for 2010 is even worse, according to ―Bouwend Nederland‖, a Dutch association of

construction companies. Particularly residential and office construction is

stagnating. As a result of weakening demand, many workers were laid off and for

the next two years employment is projected to decline further by 8.5 percent. The

Dutch government introduced special legislation, including a temporary 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 2009

Contrary to international developments the overall conclusion is that 2009 was a

positive year for the local construction sector. Several major projects were

completed including the Hyatt Hotel, a new wing at the local university, a new

building for one of the largest local banks and several expansions of hotel

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complexes. Many important construction activities in the last couple of years were

tourism- related, as the hospitality sector expanded rapidly. Usually the development

of tourism areas triggers other infrastructural works, which was also the case in

2009. There were also infrastructure works that were implemented in combination

with residential housing projects. With respect to the Social Economic Initiative

(SEI), preparations were made for several (infrastructural) projects that will be

implemented in the course of 2010. One of these SEI projects that have been

completed is the Piscadera fishing port. Table 2.4 Building Permit Statistics 2004 2005 2006 2007 2008 2009

Building permits approved 694 852 1132 1046 1156 992

Building Permits Issued 603 695 929 900 1069 876

Estimated Value of permits Issued (millions

NAf)

130.16 156.33 362.75 317.88 441.81 307.07

Buildings Completed 504 1002 982 978 747 767

Estimated Value of buildings completed

(millions NAf)

73.53 63.30 155.81 108.13 166.11 105.91

Source: CBS, 2009

The building-permit statistics in the above table are in line with the overall

conclusion that developments during recent years were positive and stable. In 2009,

the number of permits issued was somewhat lower, with a total value below that of

the previous year. The number of buildings completed in 2009 was slightly higher

than in 2008. The next table provides information on the use of important raw

materials during recent years. The index figures for 2009 concur with actual

developments, with sales only slightly lower than in the year before. Only the use of

asphalt and bricks was clearly higher in 2009 as compared to 2008, reflecting

increased infrastructural works.

Table 2.5 Index figures raw materials Year 2005 2006 2007 2008 2009

Mijnmaatschappij

Sand and road metal Index 100 104 122 129 127

Cement (delivered to BIB49) Index 100 127 141 151 137

Concrete Industry Brievengat

Concrete Index 100 146 150 169 152

Building Blocks Index 100 120 139 150 140

Bricks Index 100 109 146 148 168

Asphalt Plant

Asphalt Index 100 72 120 90 136

Source: company Janssen de Jong, 2009

49 BIB Beton Industrie Brievengat (concrete industry Brievengat)

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Outlook 2010

Shortage of technical workers

During the first half of 2010, the refinery experienced several difficulties that caused

them to temporarily shut down large parts of the plant. The management then

decided to use the opportunity to accelerate the maintenance projects planned for

this year. This led to an increased demand for skilled workers which could not be

fulfilled locally on such short notice. In addition during the same period the dry-

dock company also had to cope with a shortage of skilled workers. As a

consequence of these developments foreign workers were contracted for these

positions. The main cause of this shortage is a change in the vocational school

system.. The change in the vocational school system involved the removal of the

lower technical vocational schools which supplied the labor market with full-fledged

carpenters, masons, tillers and other craftsmen. Besides that, employers are also

unfamiliar with the new vocational-school system and how it compares to the former

technical school.

According to the Antillean Contractors Association, the uncertainty surrounding the

long-term prospects of the lease contract between the operator of the refinery

(PDVSA) and the government is a concern for local construction companies. The

current contract will expire in 2019. Competition remains stiff in this sector and is

even on the increased as foreign construction companies, especially those from

Venezuela, also participate in bids for projects in the refinery. The Antillean

Contractors Association calls for stricter business- licensing requirements for such

companies.

An important project that is currently in the implementation phase is the urban-

development plan for the area of Scharloo Abou. This project includes the building

of new dwellings, roads and other facilities, such as a child-care center. The total

cost of the project is NAf 9 million. This project is included in the SEI program.

2.3 TRADE SECTORS

2.3.1 WHOLESALE AND RETAIL TRADE

International Developments

Consumer behavior is rapidly changing worldwide. This is according to IBM‘s

institute for Business Values (IBV), who recently conducted a survey of about

30,000 consumers worldwide. Because of the global slowdown that hit the world

during the 4th quarter of 2008, consumers all over the world became more

- 67 -

demanding towards products and developed a smart consumption style, becoming

much more conscious as to the products they are buying and consuming. Consumers

nowadays can and do use modern technologies to obtain more information about

retailers and their products and base their buying behavior on this.

Despite the economic recession, the BRIC

50 countries, which are Brazil, Russia,

India and China, saw more economic movement. This recession nonetheless slowed

down the growth in these countries, but they were able to withstand the crisis

because of having built up strong consumer demand since 2001. This increased the

demand for commodities like sugar, rice and coffee worldwide and, in turn, resulted

in an increase in prices too.51

As a result of the global slowdown and increasing prices, there is a new global trend

in the international wholesale market: that of applying reverse or forward integration

strategies in this sector. This strategy has shortened the supply chain and makes it

easier for the wholesalers to purchase and put their products on the market, reducing

costs and working more efficiently.

Furthermore, FRICH52

is a fund launched by the UK Government‘s Department for

International Development to support the development of trade in food from Africa

and other developing countries, mainly to the UK. They are working towards

increasing cooperation between farmers in poor countries and supermarkets and

retailers in order to enhance their quality of living and build and maintain a reliable

supply chain from these countries. These types of cooperation might be seen more

and more in the Americas, were importers strive to work with farmers or with

exporters in order to assure a better supply chain to ultimately provide the customers

with more reliable and constant sources.

Local Developments in the Wholesale Sector

The wholesale and retail sectors are two fully developed areas of the Curaçao

economy which saw a dramatic change in consumer spending and behavior in these

last two years. The number of companies operating in this sector gives us a better

understanding of how well-developed the wholesale and retail markets are on the

island. As we can see in the table below, which contains recent figures from the

Curaçao Chamber of Commerce, the wholesale-and-retail sectors play an important

role in Curaçao‘s economy.

50 The 4 fastest growing economies in the world: Brazil, Russia, India and China 51 Source: www.euromonitor.com/BRIC_economies 52 Source: Food Retail Industry Challenge Fund website

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Figure 2.5 Amount of companies in different sectors

Source: Chamber of Commerce

This is mainly because of the fact that Curaçao imports most of its products from the

Americas, Europe or neighboring islands. This is why Wholesale and Retail account

for almost 14 percent53

of Curaçao‘s GDP, as the second-largest sector contributing

to the local economy after Financial and Insurance Services, as depicted in figure 2.6

below. The reason for the Financial and Insurance Services sector‘s huge size is

Curaçao‘s wide experience in financial services and highly skilled workforce54

.

Figure 2.6 Share of wholesale and retail in Curacao´s GDP

Source: CBS

Several events, like the Venezuelan Bolivar-tourist boom and the economic crisis,

brought about a change in the wholesale and retail sector on the island. These

53 Source: Central Bureau of Statistics of the Netherlands Antilles(CBS) 54 Source:Central Bureau of Statistics of the Netherlands Antilles(CBS); most-recent figures are from 2008

- 69 -

changes were not necessarily bad, but helped much to increase consumer prices on

the island. Since then, some retailers in the food sector have closed their doors, but

others that were already there took over their market share and saw an increase in

sales. There was also a boom in small mini marts opening all over the island.

The local wholesale market was disappointed with their performance during the year

2009, because sales decreased by 5-6 percent in that period, after a peak

performance in 2008. The outstanding performance of 2008 in the food sector was

mainly due to the high level of economic activities in the tourism sector

(Venezuelans and Dutch stay-over tourists) However, overall retail prices did not

only skyrocket in 2008 because of high consumption, but also because of the high

fuel prices during that year55

. These prices remained high during 2009 also, and

reflected a higher inflation rate than that of the previous year. Furthermore,

Venezuelan tourists jumpstarted a flow of capital that in turn boosted sales in many

other spin-off sectors such as Accommodation and Transportation, primarily for car

rentals and taxi usage56

.

Wholesalers played a big role in this, satisfying the tourism sector‘s high demand for

food products. But just as many other sectors, they experienced a fall in sales during

2009, because of the recession that hit the world in the 4th quarter of 2008. The

economic slowdown transformed the customers of the wholesale and retail sectors,

making them more price-sensitive. Customers even started to experiment with other

low-priced goods which could provide them with the same value as higher-priced

goods57

. According to supermarket owners, they had to take action and start

importing their own cheaper products to be able to offer a wider selection to their

customers.

Other players in the local wholesale sector profited from 2008 and 2009, with a

slightly lower profit than in 2009 as compared to 2008, but still showing positive

figures. In 2009, many of these big players realized the need for streamlining their

processes in order to reduce costs in the areas that they could afford to do so. These

other players were also affected by the high cost of the euro, because their primary

products were Dutch imports coming directly from Europe. The appreciation of the

euro against the US dollar put these at a disadvantage as compared to products

purchased in the US and the region.

Wholesalers are also facing direct competition from their own customers. The same

retailers that buy from wholesalers are looking for new products to offer on the

market, bypassing the wholesalers. These retailers also sell bulk products in small

quantities to local restaurants, taking away sales from wholesalers, and the latter are

going through tougher times trying to keep up with the fierce competition.

55

Source: www.centralbank.an; Quarterly Bulletin 2008-III 56

According to representatives of taxi drivers and car-rental companies 57

According to representatives of the wholesale and retail sectors

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Local Developments in the Retail Market

Looking at the food-retail sector, it can be concluded that there is fierce competition

in this sector. The retail sector can be split up into two groups: big supermarkets and

smaller (mini)markets. There is competition going on between the supermarkets and

mini marts as well as within each of these groups. Competition is based basically on

price, location, quality of products/services and product availability. One of the main

manifestations of this competition within the sector are opening hours. Supermarkets

usually open during the week, until 7 pm and on Saturdays until 9 pm, but

minimarkets stay open every day until 9 pm.

The changes in consumer spending allowed for more super/minimarkets to open,

mostly Chinese-owned local grocery stores that sometimes sell at lower prices than

the supermarkets. These Chinese grocery stores also have a competitive advantage

over their bigger competitors because of their late closing times and low wage

costs— most of the time, the owners themselves work in the stores. Working late

hours allows them to achieve higher turnovers as compared to larger supermarkets

that have to close earlier.

Besides the competition between supermarkets and mini marts, there is another

factor influencing the prices end consumers are paying. This factor is an external

problem to this sector and lies with a problem at the Curaçao Ports Authority (CPA)

with the chassis capacity for containers. This lack of chassis is a bottleneck at the

CPA58

, and is why containers which are brought in by importers of food and other

products have higher costs, which add up to the final product, driving up the price.

According to other players in the retail sector, there are still possibilities to enter the

food-retail market on the island. The key to enter is to have a better approach to

sales and product differentiation. Currently, the food retailers‘ approach is sales-

oriented. They buy bulk products in containers, disregarding actual demand for the

product, whereas other players in the food sector use a purchasing-oriented

approach, applying statistical information to predict sales. This method allows the

retailer to avoid unnecessary costs for products that will not be sold.

Another very active retail sector is Clothing and Apparel. According to the

Downtown Management Organization (DMO), revenues in the downtown area

(Punda) retail business, consisting of mainly clothing, electronics and jewelry stores,

dropped when the number of Venezuelan tourists decreased. This decrease was

caused, among other things, by the restriction set by the Venezuelan government

agency CADIVI59

and the adjustment in the Venezuelan Bolivar‘s exchange rate

(devaluation of the Venezuelan Bolivar against the US Dollar), making it less

58 Source: Plan D2; Chassis Capacity Study 2009-2010 59 Comisión de Administración de Divisas - Commission for the Administration of Currency Exchange

- 71 -

attractive for Venezuelan tourists to come and use their credit cards here on the

island. The downtown area was the most affected, seeing a huge decrease in sales,

because that is where most of the tourists used to shop for electronics and jewelry.

Outlook for 2010 and Beyond

The year 2011 is expected to be more or less the same as 2010: not much growth is

expected, due to fact that most of the players in this sector are waiting for Curaçao to

obtain its new status within the Dutch Kingdom.

Furthermore, there are no developments expected in Venezuelan tourism, which has

already decreased by almost 54 percent60

. And concerning Dutch tourism, which

also slowed down because of the depreciation of the euro against the dollar, no

major developments are expected either.

2.3.2 ECONOMIC ZONES AND E-COMMERCE

International Developments

Export-processing zones (EPZs) or Economic Zones (EZs) are those regulatory

spaces in a country aimed at attracting export-oriented companies by offering these

companies special concessions on taxes, tariffs and regulations. Over the past years,

EZs have grown in terms of their numbers, the number of countries offering them,

their size and in terms of the scope of industries they comprise. This expansion has

occurred in the face of increasing economic and political opposition to EZs at the

global level. The immediate goal is to generate foreign direct investment, exports,

foreign exchange and employment that would not occur without the EPZ. World-

Bank and other economists have been skeptical of EZs because of their distortionary

nature, fearing that EZs may serve as safety valves that create some jobs and exports

but allow a postponement of economy-wide liberalization61

. And the ILO

(International Labor Organization), which has monitored and scrutinized labor

conditions in EZs for almost 30 years, continues to be concerned about the lack of

―decent work‖ created in such zones62

. Despite the international skepticism, and

supported by the fact that the EZs in Curaçao are functioning merely as a customs

depot with no processing/manufacturing, EZs on Curaçao have a very important role

in realizing the Logistic Hub Vision:

60 Curaçao Tourism Bureau (CTB) 61 The term ―safety valve‖ is from Madani (1999). Some examples of the economic theory

perspective: ―In the economic theory, EPZs are a second-best optimum, consisting in offsetting the removal of one distortion (a customs duty) with the introduction of another (a subsidy)‖, Cling et al.

(2005), or ―An EPZ is not a first best policy choice. The best policy is one of overallliberalization of the

economy‖, Madani (1999) 62 See ILO (2005) for a recent study on decent work within the context of EPZ employment.

- 72 -

By 2016, Curaçao is recognized globally as one of the top integrated logistical hubs,

offering trusted, value-generating services across the following areas: international

financial services, information transfer, international trade, and sea and air port

services63

.

Local Developments

From 1957 until 2001, the only types of free-zones in Curaçao were specially

designated areas in which international trade (import, storage, assembling,

displaying, manufacturing, repackaging and exportation of goods) was facilitated

through exemption from import duties, excises and sales tax. At that time, the sector

was focused on the distribution of goods from the USA, the Far East and Europe to

the Caribbean and South America. In 2001, the government modernized the National

Ordinance on Economic Zones64

by incorporating trade performed through

electronic means of communication. Besides the fiscal infrastructure, a judicial

infrastructure was introduced, the National Ordinance on Agreements via Electronic

Channels65

, which regulates the legal force of electronic signatures and agreements.

The e-zone law‘s purpose is to stimulate the economy by attracting foreign

exchange, and increase employment through the export of goods and services. In

order to establish itself in an e-zone area, a company must comply with criteria

established by the Department of Economic Affairs of Curaçao, which issues the e-

zone license on behalf of the Government of Curaçao.

The tax facilities offered to e-Zone companies in the e-zones in Curaçao are:

• 0-percent import, export and excise duties;

• 2-percent profit tax on export profits (the locally-applicable profit tax is 34.5

percent);

• 0-percent sales, land and property taxes.

Currently, Curaçao has 12 e-zones in operation66

. Ten 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 e-

zones, free-zone Koningsplein, which is adjacent to the harbor, and free-zone Hato,

which is located next to the airport, are managed by the Curaçao Industrial and

International Trade Development Company N.V. (Curinde), a government-owned

agency. The e-zone companies established in these two free-zones export more than

NAf. 841 million67

collectively on a yearly basis. Monthly, large quantities of

63 August 2006- approved by the Executive Counsel of the Island Territory of Curaçao 64 Source: P.B. 2001, no. 18 65 Source: P.B. 2000, no 168 66 Air Side Office Park (HADCO) is not in operation. 67 Source: Customs/ Curinde N.V.

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containers with goods are imported, which are afterwards redistributed for export

either by sea or by air.

Free-Zone Koningsplein

Approximately 100 companies are established in this free-zone, employing around

1.000 employees. The activities of e-zone Koningsplein are mostly harbor related,

concentrating on the export of goods, like garments, clothing, cosmetics and shoes,

primarily to Venezuela, Trinidad & Tobago, Colombia, Surinam, Jamaica and

Guyana.

The area has a surface of 23 hectares, with 82,170 m2 of construction, consisting of

showrooms and warehouses. The substantial loss of space in the e-zone caused by

the fires in 2007 has meanwhile been almost recovered and fully rented. The

reconstruction of another building is in full swing and scheduled for completion in

November of 2010. A new access control system was introduced to cater to the

security needs in connection with the visitor-enrollment program at the free-zone.

This 100-percent registration system of the flow of people entering and leaving the

park greatly contributes to the necessary safety and security of the park. In total,

Curinde invested about NAf. 7 million last year.

Table 2.6 Recent total visitors e-zone Koningsplein

year Total visitors

2008 44,009

2009 38,759

2010 12,43968

Source: Curinde N.V.

Table 2.7 Countries of origin of the visitors.

Country 2008 2009 2010 (up to May 31)

Venezuela 18, 225 12,491 2,648

Jamaica 8,497 7,122 1,961

Trinidad & Tobago 3,858 4,007 1,655

Haiti 2,822 3,010 1,260

The Dominican Republic 2,058 2,000 797

Guyana 1,201 1,268 509

Surinam 716 1,102 419

China 719 856 347

Colombia 540 561 239

Source: Curinde N.V.

Most markets stayed relatively stable, though visitors from Venezuela declined

considerably, mostly because of the foreign-exchange restrictions in Venezuela. The

68 As of May 31

- 74 -

effect of the decline in visitor numbers from Venezuela is weighty, that being Free-

Zone Koningsplein‘s largest export market.

Outlook for 2010 Free-Zone Koningsplein

As Insel Air starts flying from Air Jamaica, steady increase in Jamaican visitors is

expected during the following months, with a positive growth by the end of 2010.

The number of people coming from Haiti is expected to decline as already can be

inferred from the interim figures as of May 31. There are various causes at the root

of this decrease, one of them being obstacles with regard to obtaining the necessary

visa, while the recent earthquake will also have a big effect.

Regarding visa requirements: Curinde jointly with the Directorate of Foreign Affairs

organized regular presentations on this issue resulting in a drop as to the number of

complaints.

Because of the great economic potential for Curaçao, Curinde formulated a strategic

plan in accordance with the local government‘s aim to make Curaçao an

international trade center by the year 2016. The plan is now in the process of

approval by Curinde NV‘s supervisory board. It is expected that Curinde will invest

at least Naf. 5 million and that this will especially have a large impact on the

promotion part of the e-zones.

A problem for Koningsplein is that the area is full and there are no possibilities to

expand the zone. For the further development of the free-zone, it is essential to have

additional space available either by expansion nearby or possibly even by moving

the free zone to another much larger location.

E-zone Hato Airport

The total number of companies operating within the airport e-zone exceeds 40,

employing approximately 150 persons. Among the high-value products now being

exported by established businesses are jewelry, gold, heavy equipment, medicines,

pharmaceuticals, computers, excise goods and highly specialized products such as

contact lenses and printing ribbons. In 2010, the construction of a new warehouse

with a total surface of 2,050 m² was finished. The Airport e-zone now consists of

approximately 13,500m2 of building surface in 4 different buildings.

Outlook for e-Zone Hato

Considering the space limitations at the free zone Koningsplein, further growth is

expected to take place at the airport‘s economic zone. This guarantees building

space for new e-zone activities. Potential bottlenecks are the dependence on

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adequate airlift, high utility costs and red tape in obtaining business licenses and in

customs handling. Attention must also be given to cargo handling in order to

synchronize and complete service cycles.

Service e-Zones

There are 11 service e-zones established on the island, with approximately 280

established e-zone companies. The e-service sector directly employs some 300

persons, mostly call-center operators and IT specialists. The indirect employment is

much higher of course, if you recon the obligatory administration, the need for (IT)

utilities, etc.

Table 2.8 The established service e-zones

E-zone E-zone operator Surface Established

E-Commerce Park Exploitatie Maatschappij e-Zone

Vredenberg NV

2,700 m2 2001

E-Powerhouse E-Powerhouse NV 995 m2 2002

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

1094 m2 2007

E-Zone Scharlooweg E-Zone Scharloo NV 854.2 m2 2009

E-Zone Annaschool Exploitatie Maatschappij E-zone

Vredenberg NV

207 m2 2009

Source: Curinde N.V.

Last year, two new e-zones and their respective e-zone operators were appointed, e-

Zone Scharlooweg and e-Zone Annaschool. Besides that, 108 new e-zone licenses

where issued by the Department of Economic Affairs of Curaçao on behalf of the

Government of Curaçao.

Outlook for 2010

While the e-zone industry for both 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.

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

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financial sector are just some of the advantages that make Curaçao a perfect place to

conduct (e-)business.

More bilateral treaties with different countries are anticipated, lessening the chance

of companies‘ losing their e-zone tax advantage due to ‗double taxation.‘ The sector

is also awaiting the new fiscal structure that will inevitably be introduced when

Curaçao becomes an autonomous island-state within the Dutch Kingdom. An even

more competitive fiscal regime for the e-zone sector and for the businesses in

Curaçao in general is foreseen. The scheduled date for the political and

administrative restructuring of the Netherlands Antilles is October 10, 2010.

It is expected that in 2010 at least two additional service e-zones will be appointed.

However, because of the uncertainty on the consequences of the new fiscal structure,

slightly fewer requests for new e-zone licenses are expected than the 108 submitted

in 2009.

2.4. TRANSPORTATION SECTOR

2.4.1. AIRPORT

International Developments69

Before the Icelandic plume of volcanic ash temporarily forced the closing of

European airspace in April, international air travel and air freight were rising

strongly. In March, international air travel, measured by RPKs (Revenue Passenger

Kilometers), was 10.3 percent higher than a year earlier. Air freight, measured by

FTKs (Freight Tonne Kilometer), was 28.1 percent higher. March of last year was

the low point for international air travel, so the year-on-year rate this March

measures progress since then. Freight markets are up by more than 30 percent from

their late-2008‘s low. But such was the scale of the recession that both travel and

freight markets are still one percent below early 2008 highs, implying over 2 years

of lost growth.

However, the pace of the upturn in demand during the first quarter of 2010 was very

strong. Air travel was growing at an annualized rate of 9 percent. Air freight was

growing at an annualized rate of 26 percent. Both of these are well above the 6-

percent trend growth rates and similar to the strong 1992 recovery from the 1990-91

recession. This expansion was surely knocked back in April, particularly for the

European airlines, as a result of the airspace closures. According to IATA‘s

estimates, the international RPKs will record a decrease of 4 percent.

69 Source: IATA

- 77 -

The economic environment remains a stimulus to further expansion of demand for

air travel and freight, although even that continues to be strongest in the emerging

markets but weak in Europe.

Airlines are now starting to bring back capacity to air travel and freight markets, but

still at a slower pace than the rise of demand. Passenger capacity, measured by

ASKs (Available Seat Kilometers), on international markets, was 2 percent higher in

March than a year ago. Freight capacity, measured by AFTKs (Available Freight

Tonne Kilometers), was up 5.3 percent. Load factors, seasonally adjusted, remain

close to record levels on passenger markets and continued to rise to historically high

levels on freight markets. This will help airlines turn the revival in air transport

demand into improved financial performance.

The bad news is that the pace of the upturn varies tremendously by geographical

region with, notably, European airlines seeing the weakest first-quarter growth in air

travel, at 4.3 percent, and in air freight, at 10.3 percent. This reflects the relative

weakness of the European economies. At the other end of the spectrum, airlines in

Asia-Pacific saw a 10.5 percent growth in first-quarter air travel and 35.9 percent

growth in air freight as the economic recovery continues to show strength in this

region. Middle-Eastern airlines are benefiting from regional economic growth and

market share gains on long-haul routes to grow passenger traffic 25 percent in the

first quarter and air freight by 34 percent. African airlines are now starting to benefit

from the upturn, having lost market share. In Latin America, March passenger traffic

growth was dampened by the earthquake in Chile, but freight growth remains strong.

Developments in the Local Aviation Industry in 2009

For a small open economy like Curaçao, reliable air connections to key markets are

vital to economic development and growth. Also, to fulfill the ambition of becoming

a ‗logistic hub‘ in the Caribbean, the aviation industry, which includes airlines, the

airport and air-cargo businesses, enables international trade flows as it facilitates the

movement of people and goods, and is the backbone of economic growth.

As of January 2009, Curaçao Airport Holding (CAH)—as the owner of the airport—

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.

Unique operates the Zurich airport and is a privatized company which operates the

national and international traffic hub that Zurich airport has become. Unique

employs around 1,200 people. Together with its 180 airport partners, employing a

total of about 20,000 people, Unique ensures the reliability of Zurich‘s public air-

traffic infrastructure operations. In 2007, Unique handled more than 20 million

passengers and 360,000 tons of freight. Camargo Correa is one of the leading

entities and the largest Brazilian conglomerate, founded in 1939, with operations in

infrastructure, real estate and cement. IDC is a Chilean-owned airport operator that

- 78 -

works with Unique to maintain and operate airports and airport-related facilities in

South America. The group manages airports in Chile, Honduras, Colombia and

Bangalore, India

Table 2.9 Aircraft traffic at Hato airport

Airline Destination(s) Frequency per week Aircraft type

Aires Barranquilla 3 DHC-8

Aserca Airlines Caracas/Sto. Domingo 3 DC-9-31

American Airlines Miami 14 B-737-800

ArkeFly Amsterdam 5 B-767-300

Avior Valencia/Caracas/Maracaibo 9 B-737-200

Avianca Bogota 5 MD-82 / Fokker 100

Ezair Bonaire 35 BN-2

Liat Port of Spain 3 DHC-8

Continental Newark 1 B-737-700/800

Delta Atlanta 1 (seasonal) B-737-700/800

Divi Divi Air

Bonaire

Aruba

Bogota Bonaire

Caracas

Cartagena St. Maarten

St. Domingo

Valencia

56

103

BN-2

ATR-320

ATR-500 Fokker 100

GOL Brasilia/Sao Paolo 1 B-737-800

Insel Air Aruba 135 EMB-100

Barquisimento MD-82

Bogota MD-83

Bonaire

Jamaica

Las Piedras

Puerto Rico

Port au Prince

St. Maarten

St. Domingo Miami

KLM/Air France Amsterdam 7 B-747-400

Martinair Amsterdam 4 B-767-300

Surinam Airways

Paramaribo

Port of Spain

3 B-737-300

Tiara Air Aruba Toronto, Canada

Ecuador

21 Seasonal charters

Seasonal charters

SD-360

Source: Curaçao Airport Partners

Most airlines increase their frequencies on existing routes, and the Amsterdam-

Curaçao route is now being served by multiple airlines. This has a positive effect for

Curaçao, since the euro, which is obviously stronger than the NAf, lures Europeans

to our island.

- 79 -

Passenger traffic at Hato International Airport set an all-time record in 2009, with a

total of 1,465,898 passengers, according to Curaçao Airport Partners (CAP).

Figure 2.7 Actual passenger traffic at Hato airport

Source: CAP

Table 2.10 Air Freight by weight (kg)

2006 2007 2008 2009

Inbound 5.470.649 5.846.027 5.395.834 5.801.080

Outbound 3.902.929 3.545.778 3.283.988 2.789.599

Transit 6.009.805 8.074.394 6.656.997 3.598.966

Total Weight 15.383.383 17.466.200 15.336.819 12.189.644

Daily Average 42.146 47.853 41.904 33.396

Source: CAP

In malice of the positive developments in passengers travel, caution is advisable

considering the dramatic reduction in cargo, by 20 percent.

This plunge can partly be explained by rerouting, especially of flowers from South

America to Europe because of KLM‘s changing its schedule to include more direct

flights to and from flower-producing countries. The free-zone is importing fewer

goods from abroad and there is a trend nowadays to transport goods by sea, which

takes one or two days more to get here but is far more economical.

Table 2.11 Air Freight

Airline Destination Frequency

DHL CCS-AUA Twice daily

LAS Bogota Twice daily

Amerijet Miami Once a week

Aero Sucre Bogota Once a week

Source: CAP

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

20072008

2009

Transit Passengers

Domestic Passengers

Landings (Non Military)

General Aviation

- 80 -

It is also interesting to know that we are getting some fuel stops by cargo carriers.

Particularly because the Jet-A1 fuel that Curoil offers is very competitive, we

currently have a Lufthansa MD-11 three times a week and a Cargolux Boeing 747

three times a week.

Figure 2.8 General Aviation & Commercial Flights Development

Source: CAP

General aviation comprises all flights not considered to be operated by airlines,

charter operators or the military. As can be seen in figure 2.8, general aviation at

Hato shows a decline of 24 percent compared to last year. This decline requires

studying to find out which factors played a role. Did it occur because the ‗dollar

tourism‘ out of Venezuela ran out of gas? Is there not enough marketing for Curaçao

as a destination? Or is it just a general aviation trend?

Outlook for 2010

International Aviation Industry

Airline markets rose strongly at the end of last year and early in 2010, but growth

remains concentrated in the emerging markets of Asia, Latin America and the

Middle East, with benefits accruing mainly to airlines in these regions, highlighting

the problems caused by ownership rules. Airlines in the large developed markets of

Europe and North America face much more sluggish market growth. This 2-speed

recovery in economies, freight and travel markets is reflected in the divergent

performance of airlines in different regions. Helped by the strong year end, IATA

adjusted its estimates for 2009 net losses from US$11 billion to US$9.4 billion.

0

5,000

10,000

15,000

20,000

25,000

20062007

20082009

Total

Commercial Flight

General Aviation

- 81 -

More significantly, IATA now forecasts smaller losses in 2010, of US$2.8 billion,

compared to IATA‘s previous forecast of US$5.6 billion, with the largest

improvements benefiting airlines in Asia and Latin America.

One notable change has been to average traffic growth, which is now expected to be

much stronger in 2010—with a 5.6-percent rise in air-travel volumes and a 12-

percent rise in air freight—mostly due to the very strong recent gains. In addition,

forecasts for economic growth in 2010 have been revised up, with the notable

exception of Europe, causing airlines in that region to be the poorest performing.

As one of the most cyclical industries, it is not surprising that the financial

performance of airlines is closely tied to economic growth in the network areas they

serve. But it is unique to this industry that those network areas are tied to local

conditions. Although there has been further development of alliances, co-operation,

joint ventures and some mergers & acquisitions, airlines are still highly dependent

on the traffic generated by their local economies and trade lanes. This is in contrast

to many of the companies listed on major stock exchanges that generate their

earnings from across the globe; these companies are not restricted by the market and

ownership rules that constrain airlines.

Local Aviation Industry

The local aviation industry‘s focus for the coming year(s) will be on the

development of code share partners with much bigger and stronger companies, like

the latest Insel Air – Gol code share deal. This will allow us to be much more

present in the market.

To meet international demands and remain in compliance with these standards, the

runway has to be renovated. CAH and CAP are busy looking at how to realize this.

CAH is also looking at the possibility to have passengers‘ busses on the deck to

drive the passengers from the terminal to the aircraft and vice versa. They also want

to build a new passenger bridge and fix the one that is out of service as soon as

possible.

Curaçao Airport Holding is looking into the possibility of creating a spaceport.

There are two interested groups who have been on the island to give presentations. It

is still unclear whether it continues. The intention is to complement the space port to

space tourism to facilitate the development of a theme park a la Cape Canaveral in

the U.S.

Another positive development is the fact that the local airline company, Insel Air,

will expand its regional destinations. The new destinations that Insel Air plans to

start flying in 2010 are Barquisimeto, Caracas, Bogota, Medellin and Charlotte. Insel

Air started this year with flights to Jamaica.

- 82 -

As part of the Logistic Hub Vision, Curaçao Airport Holding committed itself to

align its strategies as much as possible with objectives agreed upon with the

stakeholders of the aviation industry. The objectives are as follows70

:

Objective 1: Alignment and commitment of strategic partners to the long-term vision

of the Logistical Hub, with clear roles and responsibilities for its implementation.

Objective 2: Developing Airport City to stimulate and facilitate the growth of the

airport, the hub and the island economy.

Objective 3: Developing and upgrading the ―airport-complex‖ infrastructure based

on mutually agreed strategies that support the airlift services necessary for a

competitive logistical hub.

Objective 4: Insuring high quality of services for airlift, cargo and services within

the airport complex.

Objective 5: Creating an airlift-development strategy that is supported by all

strategic partners.

Up to the present, the aviation policy and regulations for Curaçao have been the

responsibility of the Central Government. However, in the near future, when

Curaçao becomes autonomous, the island will be responsible for its own policy,

regulations, air-traffic control, agreements and the granting of licenses to air carriers.

This creates the opportunity to restructure the island‘s aviation policy, allowing it to

become an attractive location for a regional and international origin and destination

traffic and transshipment hub for both passengers and cargo between the continents

of North and South America, as well as Europe and possibly Asia.

2.4.2 HARBOR

The harbor‘s overall performance for 2009 in comparison to 2007 shows a decline of

5.7 percent and in comparison to 2008 we observe a decline of 8.9 percent in harbor

activities (see figure 2.9). The number of freighters and transshipment containers has

declined. This is probably due to the hard competition from harbors like Colon and

Jamaica, which have upgraded their harbor infrastructure to accommodate post-

Panama container ships. The number of tankers has declined by 14 percent in 2009

in comparison to 2008, and the total number of cruise ships has increased by 8.8

percent in 2009. The decline in freighters is due to the international financial and

economical crisis, which affects the growth rate of world trade. Also, in the region,

we notice alliances being formed between foreign shipping liners and local

70

Source: CAH operational plan

- 83 -

terminals. Harbors in Jamaica, St. Maarten, Cartagena, Trinidad, Manzanillo and

Colon are currently investing in the post-Panama infrastructure to bring their cargo

handling up to par with the opportunities resulting from the opening of the new

Panama Canal in 2014. The opening of the new Panama Canal also offers

opportunities to the Curaçao Ports Authority (CPA), which has already started a new

company in Panama to render tugboat services. A memorandum of understanding

has been signed between the CPA and the authorities in Panama, through which

maritime knowledge, training and information (on trade, navigation and vessel

traffic) will be exchanged. Also, the new cruise port in Colon, Panama which will

start operation with a new Southern-Caribbean route, opens the opportunity for local

ports to act as ports of call.

Figure 2.9 Number of calls by ship type

Source: Curaçao Ports Authority

In table 2.12 we observe a slow decrease in TEUs. This has to do with the fact that

less construction materials for hotels, apartments, houses and other commercial

buildings were imported in the past year. Transshipment cargo, which is a

changeable and sensitive market, has also declined.

Table 2.12 Freight Cargo 2007 2008 2009

TEUs 97,271 102,082 97,913

Local market 81,544 88,375 86,766

Transhipment 15,727 13,707 11,147

Source: Curaçao Ports Authority

In 2009, the investments made by Curaçao Ports Authority were between 25 and 50

million guilders, with revenues of approximately 50 million guilders. There were

230 persons employed. For 2010, the same amount of investments and revenues are

expected. The Kompania di Tou Korsou (KTK) is owned by the CPA. During 2009

-

500.00

1,000.00

1,500.00

2,000.00

2,500.00

3,000.00

3,500.00

20072008

2009

Freighter

Tanker

Cruise

Others

Total

- 84 -

and 2010, the KTK invested about 42 million guilders in 3 new tug boats. These

new tugboats are currently operational.

The KTK‘s fleet currently consists of 7 tugboats (including the newly purchased

ones) for local and international towage and 4 pilot boats to transport pilots,

materials and persons to other ships. The number of persons currently employed by

the KTK increased from 90 in 2009 to 115 in the year 2010. The increased

investments by the KTK are mostly due to the fact that international demand for

towage activities is growing.

Due to the opening of the new Panama Canal, a new branch of the KTK has been

established in Panama to render tugboat services. The KTK is currently also working

on the ISO 9001:2008 certification, because for this company to compete

internationally, its boats and staff need to suit the criteria and requirements

established by international laws and maritime regulations. The KTK‘s contribution

to the CPA‘s revenues was about 60 percent in 2009. For 2010, the same percentage

is expected.

With regard to the Curaçaosche Dok Maatschappij (CDM), as in 2009, due to the

international economic decline, orders for new ships are being postponed and repairs

are only done if really necessary. Regarding investment projects, currently the CDM

has no means to finance these. At present, the status of negotiations between the

CDM and international companies interested in becoming strategic partners within

the CDM is not officially known.

Another stakeholder in the Harbor is Curaçao Port Services (CPS N.V.)

This container-port service company serves as an origin-destination port and serves

the national market, the transshipment market and exports from the national market.

In 2009, their investments were between 100,000 and 250,000 guilders, with

revenues between 25 and 50 million.

Outlook for 2010 and Beyond.

Curaçao‘s main port, the Port of Willemstad, accessed through the St. Anna Bay

Harbor, through which vessels can enter the Schottegat Bay inlet, currently offers

most port-related services and activities, including cargo docks, a dry dock, the

refinery and other services.

For 2010, the CPS expects a 2 to 3 percent decline in freight cargo. This is due to the

strong competition by the free-zone in Panama, the completion of large construction

projects and the tourism sector‘s decline. Beyond this year, it is expected that the

number of freight cargos will increase due to the number of transshipment cargos

which will have to be shipped from Curaçao to Bonaire, and also due to the poor

(transshipment) services offered in Venezuela.

- 85 -

The CPA expects cruise-ship calls to decline from 234 in the year 2009 to 231 in

2010. The amount of passengers will also decline form 423,088 to 383,921. This

decline is because the cruise ship Adventure of the Seas has been replaced by

another ship, the Serenade, with a smaller capacity.

For the years beyond 2010, it may be anticipated that once the expansion of the

Panama Canal is completed in 2014, very large vessels will become the norm in

Caribbean waters. This is an opportunity for Curaçao‘s ports to evolve and grow in

capacity to accommodate these larger vessels. Also, (possible) large construction

projects in the Caracas Bay area may increase the number of cruise ships, cruise and

stay-over passengers and the quantity of freight cargo, and also mean more work

activity for the CDM.

2.5 TOURISM

International Developments

―As expected, the negative trend in international tourism that emerged during the

second half of 2008 intensified in 2009,‖ according to UNWTO (World Tourism

Barometer). This was as a result of the prolonged global economic and financial

crisis, combined with concerns about the outbreak of the (H1N1) influenza virus.

During the first part of 2009, only Africa and South America reported growth in the

number of tourist arrivals, while all other sub regions registered declines. In the end,

2009 proved indeed to be a challenging year for the tourism industry; international

arrivals declined by 4.3 percent. Fortunately, the first months of 2010 were

characterized by an upward trend and, according to preliminary figures compiled by

the UNWTO, growth has been positive in all world regions. After 14 months of

negative results, a few countries are reporting even double-digit growth for the first

months of 2010. International travelers did experience a serious disruption during

this period, caused by ash clouds after the volcano eruption in Iceland. European

airspace was partly closed for 2 weeks, resulting in serious losses for travelers,

airlines, tour operators and other related sub sectors. The UNWTO world-tourism

growth forecast for 2010 is of 3 to 4 percent.

- 86 -

Local developments

Figure 2.10 Cruise tourism

Source: Curacao Ports Authority *forecast

From 2006 on, the number of cruise passengers has been increasing steadily,

reaching a record of more than 420,000 in 2009. Unfortunately this trend will not

continue in 2010; the predicted number of cruise passengers will be almost 40,000

short of last year‘s total. The number of cruise passengers is expected to decline

further in 2011 with another 11,000, reaching 376,745. The main reason for this

decline is that one of our regular cruise lines (Royal Caribbean) reduced the number

of calls, while using a smaller ship (Serenade of the Seas) for this itinerary. This

combines with the fact that yet another cruise line, the Ocean Dream, reduced its

calls from 51 to 36 in 2010.

Introduction of New Room Tax

In 2009, the government revised the Room-Tax legislation which dated from 1992.

The interpretation of the new law is that all accommodations, including timesharing

locations and apartments run by private individuals, are liable to room tax just like

hotels. The revenues from this tax will be used for promotional activities for the

island and will be fully incorporated into the Curaçao Tourist Board‘s (CTB)

budget.

Hotel Development

For the last couple of years, the number of hotel rooms on the island has been

growing rapidly. Recently, the largest additions were the Renaissance Curaçao Hotel

60%

80%

100%

120%

140%

Cruise Statistics

Cruise calls Cruise passengers

- 87 -

& Casino in 2009 and, in 2010, the Hyatt Regency Curaçao Resort. Another 530

rooms will be added to the stock during 2010, at about 10 different accommodations

on the island. Partly as a result of the increase in the number of rooms, the average

hotel-occupancy rate went down from 85 percent in 2008 to 75 percent in 2009, as

registered by CHATA. The average hotel-occupancy rate for the first quarter of

2010 was 73 percent.

Figure 2.11 Average Hotel Occupancy Rate

Source: CHATA * January- April 2010

Stay-Over Tourism

In the last couple of years, the local tourism industry outperformed its regional

counterparts in terms of arrival growth figures. However, in 2009 the overall number

of visitors plummeted by 10 percent and nights with 9 percent. Arrivals from Europe

increased, but not enough to compensate for the decline from all other main markets.

Luckily, the outlook for 2010 is moderately positive, with growth prospects of 2 to 3

percent for the Caribbean region, according to the Caribbean Tourism Organization

(CTO). The CTB expects an overall decrease in total arrivals of about 4 percent in

2010, mainly due to the crash of the Venezuelan market. The Venezuelan market is

expected to register a 58 percent drop in stay-over nights. In 2009, the total tourist

expenditures amounted $ 311.26 million but for 2010 a decrease is expected

reaching the level of $ 287.20 million.

Increasing airlift to the island remains a high priority for the CTB, especially with

the additions to the room stock during 2009 and hundreds more planned for this

year. Negotiating with airlines proves to be a lengthy process, and new routes are

planned in cautiously for future seasons, often after months of talks. Current

negotiations in a preliminary phase include an airline from Panama.

65

70

75

80

85

2005 2006 2007 2008 2009 2010

Occ

up

ancy

rat

e

Year

Percentage

*

- 88 -

Table 2.13 Arrival development in main markets

2008 2009 % Change

North America 50,924 42,055 -17

South America 172,820 130,310 -25

Venezuela 148,890 104962 -30

Brazil 4,215 4,406 5

Suriname 6220 9108 46

Colombia 5,359 6,164 15

Caribbean 41,154 36,291 -12

Aruba 16,848 16,571 -2

Jamaica 9,591 7,052 -26

Barbados 754 850 13

Trinidad and Tobago 6,499 5,239 -19

Dom. Rep 2,612 2,609 0

Haiti 1,770 1,784 1

Europe 136,747 148,450 9

Netherlands 113,696 126,209 11

United Kingdom 2,894 2,100 -27

Belgium 3,156 3,685 17

Germany 5,516 6,806 23

Italy 1,024 722 -29

Spain 1,028 838 -18

Others 7,199 9,731 35

Total visitors 408,844 366,837 -10

Stay-over Nights 2,977,771 2,696,798 -9

Source: CTB

Europe

Europe, and more specifically the Netherlands, is currently our largest and strongest

market. In 2009, arrivals from Europe totaled 148,450 of which 126,209 were from

the Netherlands. Despite the fact that arrivals from several countries decreased by

double digits, the growth in tourists from Europe measured 9 percent as compared to

2008. In April of 2010 there were some disturbances in the flight schedule of

European-bound flights due to the volcanic ash cloud, resulting in many

cancellations, but on the other hand these distortions also caused a group of tourists

to extend their stay on the island, forcibly. Preliminary figures from the CTB for the

first quarter of 2010 indicate that arrivals from Europe increased with 7 percent as

compared to last year‘s first quarter. Countries with double-digit growth include

- 89 -

Belgium (25%), Italy (15%), Norway (51%) and Spain (45%) amongst others. The

Italian airline company Blue Panorama will start charter flights between Milan and

Curaçao. Hopefully, this new charter connection staring in July of 2010 will further

increase the number of tourists from Europe.

North America

In 2009, this market‘s performance was greatly affected by the prolonged financial

and economic crisis in the US. Arrivals from the North-American market amounted

to 42,055 in 2009, translating to a 17 percent drop compared to 2008. Fortunately,

the first quarter of 2010 proved to be a turnaround for the US market, marking a 31-

percent increase in arrivals. Airlift from the US continues to be a challenge, as US-

based airlines are cautious in adding or even maintaining existing flights. Local

airline Insel Air has daily flights to Miami, mostly carrying locals and Venezuelan

transfer passengers. Insel Air will possibly start executing flights from Charlotte in

cooperation with US Airways, which will further improve airlift to the island. The

interline agreement between Insel Air and US Airways will facilitate connections to

all parts of the United States. The CTB expects the US market to end up with a 19-

percent growth in 2010 which will be a significant improvement compared to 2009.

South America

As a result of monetary and travel restrictions imposed by the Venezuelan

government, arrivals from this market took a nose dive in 2009, resulting in a loss of

one third of arrivals. Several other South-American markets also showed a dramatic

decrease last year, including Ecuador (-45%). The overall drop in arrivals from the

South-American market was 25 percent, and the short-term outlook remains

negative as Venezuelan arrivals in 2010 are expected to be less than half of last

year‘s total. This is already noticeable in figures for the first quarter of 2010, with

dramatic decreases in Venezuelan arrivals. Despite the fact that some smaller South-

American markets registered growth (including Brazil and Suriname), that cannot

mitigate the effect of the Venezuelan market. The weekly flights from Brazil‘s

capital by airline Gol seem to be yielding positive results, with a 188-percent

increase in arrivals during the first quarter of 2010 as compared to last year‘s first

quarter. The CTB‘s strategy is to increase marketing in other South-American

markets besides Venezuela in order to further boost arrivals from that continent.

Hopefully, during 2010, Insel Air will add four new South-American destinations to

its flight schedule. The new destinations are Caracas, Barquisimeto, Bogotá en

Medellin.

Caribbean

Total arrivals from the Caribbean region dropped by 12 percent in 2009. Especially

arrivals from Jamaica were affected, as Air Jamaica stopped its flights to Curaçao

- 90 -

last year, while Haiti was hit by the devastating earthquake in the beginning of 2010.

Insel Air re-established airlift from Jamaica in June of 2010, hopefully boosting

arrivals for this year. As for this quarter, an increase in arrivals from the Caribbean

region is already being seen, in line with the CTB‘s 8-percent forecast for 2010.

2.6 FINANCIAL AND BUSINESS SERVICES SECTOR

2.6.1.COMMERCIAL BANKS

Local Developments in 2009 and 2010

The international financial crisis had a limited effect on our economy and the

financial sector in general in 2009. For the hospitality sector, visitor arrivals in the

tourism sector declined by 10 percent in 2009 as compared to 200871

. The

construction sector also experienced a slow down, despite the ongoing big projects

like the completion of the Renaissance and the Hyatt Hotel, the construction of the

new Maduro & Curiel‘s Bank premises, the new parking garage in Downtown

Punda and the construction of real estate, like houses and resorts.

The commercial banks managed to stay competitive and generated profits despite

the economic challenges. The government-debt restructuring program was initiated

in 2009, resulting in the cancellation of the outstanding government debts by the

Dutch Government. Consequently, the local government stopped issuing bonds in

April 2009 and paid out matured bonds.

Liquidity Surplus

By the end of 2009 and into the beginning of 2010, the local commercial banks, as

the main treasury holders, were confronted with a major liquidity surplus as a result

of the matured government bonds being paid out. This surplus put pressure on the

interest rates, which lead to a reduction in interest rates on deposits and loans.

Considering the fragile international money markets, the local commercial banks

focused on investing their cash locally by offering attractive long-term and short-

term loans with lower interest rates. Residential mortgage interest rates dropped

from 8.6 percent to an average of 6.5 percent72

. Interest for personal car loans

dropped from 5 percent to 3 percent on average for new cars. Similar declines have

taken place in commercial lending rates. A variety of personal loans was extended

and the local banks competed heavily to gain market share on retail customers.

Savings and deposit rates also declined to an average of 1 percent on personal

savings accounts and 2 percent on deposits.

71

Source: 2009 Statistics Curaçao Tourist Board 72

Source: Financial Highlights 2009, Maduro & Curiel‘s Bank N.V.

- 91 -

Some commercial banks opted to invest their cash into strengthening their solvency

position73

. Others chose to improve cost efficiency to remain profitable74

. Some

others focused on supporting and educating their clients in the SME sector. More

loans were extended to new small businesses.

We can conclude that the government-debt repayment has not benefited the

commercial banking sector. The liquidity surplus has led to a less-than-favorable

situation for the commercial banks. They were forced to drop interest rates, which

means lower revenues from interest. For the coming months we expect the interest

rates to remain unchanged.

Table 2.14 Overview Key Financial Figures 2009/2008

Banks Assets in

2009

Assets in

2008

Liabilities in

2009

Liabilities in

2008

Net

income after tax

2009

Net

income after tax

2008

MCB Bank 5,843,210 5,425,111 5,343,473 4,972,311 119,136 144,853

RBTT

Bank

4,099,207 3,939,406 3,697,784 3,567,008 45,624 60,477

Banco di

Caribe

1,449,344 2,433,668 1,236,415 2,227,325 19,014 10,091

Girobank 1,377,620 1,339,664 1,274,397 1,248,845 12,404 11,398

Source: Annual reports MCB, RBTT, Banco di Caribe and Girobank

Table 2.15 Specification of Accounts

Banks Gross Loans &

advances to customers

2009

Gross Loans &

advances to customers

2008

Customers‘

deposits 2009

Customers‘

deposits 2008

MCB 3,257,709 3,114,654 5,117,338 4,705,540

RBTT 2,295,993 2,266,210 3,210,427 3,131,053

Banko di

Caribe

754,430 820,733 1,208,715 1,028,246

Girobank 419,408 422,757 1,102,759 1,062.059

Source: Annual reports MCB, RBTT, Banco di Caribe and Girobank

Consumer Spending

The excess liquidity has also had an indirect negative effect on consumer spending

and will slow down economic activities. The aggressive borrowing that was

promoted by the banks in 2009 and 2010 has persuaded many consumers to borrow

money from the banks for unnecessary spending, such as on vacations and luxury

73

Source: Consolidated Financial Highlights Dec 31, 2009 Girobank N.V. 74

Source: Speech by Dr. E.Tromp, President of the Central Bank of the Netherlands Antilles,

on the occasion of the official opening of the new headquarters of Orco Bank. April 10, 2010

- 92 -

goods. However, these loans will have to be paid back on a monthly basis,

consequently affecting the consumer‘s net spending capital75

. This weakening of

purchasing power has affected local retail stores and banks in 2010. Retail stores in

general have experienced a drop in sales and banks have likewise experienced a

similar slowdown in the number of banking transactions in the first quarter of

201076

. We can conclude that the banks‘ excess liquidity has indirectly weakened

the market‘s purchasing power in 2010 and will continue to do so in the coming

years if no incentives are implemented to boost consumers‘ income. Cutting direct

taxes, e.g. the income tax, may be a way to stimulate consumer spending.

New Developments

Challenging times are ahead with the dismantling of the Netherlands Antilles. The

BES islands will introduce the dollar as their monetary currency, which will also

have implications for the commercial banks with branches on the BES islands. With

the disappearance of the Antillean guilder and the introduction of the dollar as

monetary currency, the banks will miss a substantial income on foreign-exchange-

conversion transactions. There will be fewer buying and selling transactions for

dollars, since all transactions will only be in dollars, and the number of currency-

related transactions will also drop. Anticipating this new situation, the commercial

banks have modified their networks to be able to adapt to the new situation, which

has required some extensive investments in IT infrastructure. This will probably also

have to be implemented for Curaçao once the government has decided which

currency will be introduced for the new ―Pais Kòrsou‖.

With the new constitution, the government authorities are looking into introducing a

new banking regulation on deposits. Each bank will have to keep a standard deposit

capital with the central bank for security purposes. This will also influence banking

costs in general and will have to be covered by raising banking fees.

Outlook for 2010

Despite the economic challenges, the banks are looking very optimistically at the

year 2010 and expect better results than in 2009. Expectations are that the economy

will show a slight growth as compared to 2009 due to the recovery in the tourism

industry and trade, which will generate more banking transactions for commercial

banks.

75Source: Interview with the Director of Girobank N.V 76 Source: Interview with the Director of Girobank N.V

- 93 -

2.6.2 INTERNATIONAL FINANCIAL & BUSINESS SERVICES

Introduction

The International Financial Services sector includes (tax) lawyers, insurance

companies, fund management, security dealings and off-shore financial institutions

specialized in international banking.

Since the 1940s onward, the island of Curaçao has been a major international

financial center. However, since 2003, the island has encountered fierce competition

from especially Panama and the Cayman islands.

Indicators for this sector up to 2009 show a declining trend. According to the

Curaçao International Financial Services Association (CIFA), the years 2003 to

2009 were characterized by:

A declining number of financial transactions;

Stagnation of projects;

Little interest in investing on the island.

Despite the declining trend in the international financial sector, the sector remains

one of the major pillars of the local economy. This statement is based on the

following facts:

Approximately 1,000 professionals are employed in the sector (employees

in this sector are relatively well-paid in comparison with other sectors);

Worth mentioning is the fact that during the Global Regional Meeting

2010, which was held in Curaçao, statements were made that the

contribution of the IFS was estimated at 16 percent of the gross domestic

product;

The sector generates foreign exchange;

The sector contributes to the public treasury, being liable to taxation.

Further analysis of the figures on taxes paid by the financial sector over 2007 and

2008 indicates a tax increase of approximately 21.1 percent as compared to 2006.

Although there was a declining trend in the number of transactions for the financial

sector, its contribution to the public treasury is substantial.

Developments in 2009

The Netherlands Antilles has signed tax treaties with several countries. Tax treaties

are bilateral agreements with respect to taxes and aims to reduce double taxation and

eliminating tax evasion. Worth mentioning is the fact that tax treaties are useful only

when there is a substantial number of financial transactions or significant trade

between two countries.

- 94 -

The treaties signed by the Netherlands Antilles mean that we are willing to

cooperate and exchange tax information with those countries in order to assist in the

fight against (inter)national money laundering and terrorism.

By 2009, the local government had met the conditions set by the Organization for

Economic Co-operation and Development (OECD) by signing tax treaties with

several countries. As a result, the OECD removed the Netherlands Antilles from

their grey list. As of the end of 2009, the Netherlands Antilles appears on the

OECD‘s white list.

This appearance on the OECD‘s white list has a positive impact on the competitive

position of the Netherlands Antilles in general and thus Curaçao‘s in particular as an

international financial center. Since its appearance on the white list of the OECD,

more investors are willing to invest in the island. According to CIFA, there are at

this moment slight signs of improvement in the sector in comparison to previous

years.

Furthermore, concrete actions are being taken regarding the official launching of the

Dutch Caribbean Securities Exchange (DCSX) in 2010. The mission of the DCSX is

to be an international securities exchange, listing and trading domestic and

international securities. The DCSX was incorporated on May 5, 2009, and is

licensed by the Ministry of Finance of the Netherlands Antilles and regulated by the

Central Bank.

The DCSX has been operational since the 5th of March, 2010.

At this moment, the majority of services provided by the international financial

sector are required on purely fiscal grounds, and those who invest do so driven by

tax motives. Some local experts believe that in order to improve the competitiveness

of the international financial sector we should modernize our products. This implies

a mental shift; we should change from being a tax haven to being an investment

haven, with special attention being given to more transparency and decisiveness.

A global analysis of our financial sector indicates that its strengths are:

A lot of expertise (accountants, lawyers, fiscals)

Appearance on the OECD white list

Excellent infrastructure

Political stability

Licensed exchange market

Multilingual population (our professionals have the ability to express

themselves in English, Dutch, French and Spanish fluently)

Optimism in the sector

Supervision by the Central Bank

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The weaknesses are:

Unattractive legislation

High tax rates

Unattractive investment climate

Inflexible immigration laws

No new development of products or services for clients

Conclusions

1. Our financial sector is not competitive enough in comparison to our

neighbors in the region, such as Panama and Bermuda.

2. Corrective actions should be taken in order to improve the competitiveness

of our financial services through modernization of the products and

services provided to clients.

3. A mental shift is required in order to assure a leading position for our

financial sector.

Outlook for 2010 and 2011

At the end of 2010, the Financial Action Task Force (FATF) will screen the local

financial services sector. Actions are being taken in order to obtain a positive

evaluation by the FATF. A positive evaluation is crucial for maintaining the good

reputation of our international financial services. It would also mean that the

Netherlands Antilles will remain on the white list of the OECD.

On the international scene, the Netherlands Antilles‘ appearance on the OECD‘s

white list had the following positive impacts on the local financial sector:

Increased confidence by investors

More optimism in the sector

Slight increase in the number of financial transactions

Special attention should be paid to the fact that on October 10, 2010 the Netherlands

Antilles will be officially dissolved; Curaçao and St. Maarten will become separate

countries, while Bonaire, St. Eustatius and Saba, the so-called BES islands, will be

considered overseas Dutch territories.

The BES legislation, which has many similarities with Dutch legislation, will

become applicable on the BES islands. The CIFA indicates that it will follow

developments regarding the BES islands very closely. In order to maintain our

competitiveness, we should match the fiscal system of the BES islands.

Like the CIFA members, the local government must become aware of the

importance of our role as a financial center and take concrete actions to:

Improve the financial climate by reducing red tape;

Sign tax treaties with more countries;

- 96 -

Give priority to the making and implementation of the corresponding laws

and;

Make immigration laws more flexible.

Expectations for 2010 are high. The members of CIFA are optimistic. The year 2010

could be characterized as one full of challenges and opportunities due to:

Land Curaçao‘s becoming a reality;

the establishment of the BES islands;

the official launching of the DCSX;

the FAFT evaluation;

the introduction of the BES legislation.

CIFA‘s aim for the near future is to belong to the top five of world financial centers.

In order to achieve this goal, special attention should be given to:

Expanding the tax network

Reducing profit taxes

Constant upgrading of local professionals

Further flexibilization of the labor market

Delivering ‗red carpet‘ services

2.6.3 INSURANCE

International Developments

In the US, the insurance business is divided up into the life/health and

property/casualty branches. Due to the financial crisis in the US, special attention

was paid to the impact of this crisis on the insurance sector in that country. But

supported by stimulative monetary and fiscal policies and the concerted efforts of

policymakers to stabilize the financial system, a recovery in economic activity

appears to have begun in the second half of last year. One factor that served as an

important impetus to the expansion was firms' success in working down the excess

inventories that had built up during the contraction, making companies more willing

to expand production. Indeed, the boost from the slower drawdown in inventories

accounted for most of the sharp rise in real gross domestic product (GDP) in the

fourth quarter of last year, during which real GDP increased at an annual rate of 5.6

percent. With inventories now much better aligned with final sales, however, and

with the support from fiscal policy set to diminish in the coming year, further

economic expansion will depend on continued growth in private final demand.

The World Insurance industry outside the United States is divided into life insurance

(which is often used as a tax-saving option for the long term, i.e. life mortgages) and

non-life insurance (also known as general insurance). The non-life insurance

segment covers i.a. fire, burglary, health and motor insurance.

- 97 -

The Insurance Industry in Curaçao

The insurance sector is an important segment in terms of jobs and income generated.

This sector of our economy has a few unique features. Principal aspects are the small

local market, concentrated competition, and the fact that expertise and services are

mainly distributed through brokers. The principal insurance companies operating on

the island are subsidiaries or branches of foreign insurance companies.

The insurance industry in Curaçao is divided up into the life insurance and non-life

insurance segments. Local non-life insurance consists mainly of third-party

insurance, property insurance and health insurance. The local insurance companies

dominate the life-insurance market with a share of more than 75 percent, while

international companies virtually own the non-life insurance market with a share of

over 80 percent.

In 2009, investments, turnover, employment and competition in the local market

were approximately equal to the amounts and rates for 2008, as expected.

Table 2.16 Overview Insurance Companies in Curaçao

2007 2008 2009 2010

Life Non-life Life Non-life Life Non-life Life Non-life

Foreign subsidiaries 3 5 3 5 3 5 3 5

Foreign branches 6 8 5 8 5 8 5 8

Independent 2 8 2 8 2 8 2 8

Source: Central bank 2010

Since 2007, the foreign subsidiaries offering life and non-life insurance have

remained the same. On the other hand, the foreign branches offering life insurance

decreased by one branch in 2008, and from then on remained the same.

The table above illustrates the fact that the number of insurance companies remained

more or less the same. This clearly shows that this segment of the economy is quite

stabilized.

Outlook for 2010

The upcoming constitutional changes, with the proposed debt relief, will make it

tougher for the insurance companies to find suitable investment products on the

market. Deteriorating international investment results, while locally a 4-percent

return guarantee was provided by the insuring companies, can have implications for

the solvency of these companies. Other important challenges are increases in

healthcare costs and the fusion of the Social Insurance Bank (SVB), with the

proposal to elevate the upper limit of salary, and the Foundation Bureau medical

expenses services (BZV). This will have an adverse effect especially for the private

insurers.

Also, the impending introduction of the general health insurance plan (AZV) will

influence the private insurance sector, because they are about to be trampled.

- 98 -

The government can also contribute to the sector by creating an attractive

investment climate for entrepreneurs (creating conditions to proceed), involving

private insurers in implementing the AZV legislation, introducing full tax

deductibility on private health insurance premiums and tightening the controls on

existing regulations, including payment of premium car insurance.

Internationally, central banks act as watch dogs of the insurance industry for the sole

reason that, even though they are not as volatile as banks, they have to remain

fundamentally strong to make sure that the basic function of insurance companies—

the orderly transfer of risk from client to insurer—continues without interruption.

Insurers today continue to sell and renew policies, pay claims and develop new

products to protect people‘s property, businesses and retirement funds. The bottom

line is that, unlike banking, insurance markets are functioning normally.

2.7 HEALTH CARE

Introduction

Healthcare spending around the world is rising at a faster rate than overall economic

growth, so almost all countries have seen healthcare spending increase as a

percentage of their gross domestic product (GDP) over time77

. This raises questions

about how countries will pay for future healthcare needs. The causes of the

increasing healthcare costs may be different, but there are some global trends such

as aging, higher life expectancy, the appearance of new diseases requiring more

research and new, expensive medication, the systems of financing and the progress

of medical technology78

.

In the United States, where there is strong competition between suppliers and the

intervention of the public sector is low, the share of GDP devoted to health care

grew from 13.6 percent in 2000 to 16 percent of GDP in 200779

. This is by far the

highest share in the OECD and more than seven percentage points higher than the

average of 8.9 percent in OECD countries80

. The Health and Human Services

Department expects the healthcare share of GDP to continue its historical upward

trend, reaching 19.5 percent of GDP by 2017. Important reasons for the U.S.‘s high

spending are higher U.S. per-capita GDP, as well as a highly complex and

fragmented payment system that entails high administrative costs81

. Despite the high

77 Healthcare spending in the United States and OECD Countries 78 Source: Efisiensia den Balansa, Deloitte and research from WHO and PAHO 79 Source: OECD health data 2009 80 Disparities in health expenditures across OECD countries (30 September 2009) 81 Source: U.S. Health Care Spending In An International Context, 2004

- 99 -

level of spending, the U.S. does not achieve better outcomes on many important

health measures. In 2000, the Netherlands spent 8.0 percent of its national income

(GDP) on health care, and this percentage grew to an estimated 9.8 percent in 2007.

International Comparison

In the OECD countries, the role of the public sector is significant and the amount

spent on health care lies around 8 to 10 percent of GDP. Almost all OECD

countries, with the exception of the U.S. and the middle-income countries, Mexico

and Turkey, have full insurance coverage for their populations. Americans

consumed $7,290 of health services per person in 2007, almost two-and-a-half times

more than the OECD average of just under $3,000. In most countries, healthcare

spending is largely financed out of taxes or social-security contributions, with

private insurance or ‗out-of-pocket‘ payments playing a significant but secondary

role. The richer a country is, the greater the amount of money it devotes to its health

care. If per-capita income is around $ 20,000, a country is ‗expected‘ to spend about

$1,500 per person on health, whereas if per-capita income is $40,000, health

spending of a bit more than $3,500 would be predicted82

.

The following table shows a few important health statistics of the OECD countries.

Table 2.17 OECD country comparisons of some health statistics Country A

83 B

84 C

85 D

86 E

87 F

88

Austria 10.1 3763 76.4 3.8 7.8 80.1

France 11.0 3601 79.0 3.4 7.1 81.0

Germany 10.4 3588 76.9 3.5 8.2 80.0

Hungary 7.4 1388 70.6 2.8 7.1 73.3

Mexico 5.9 823 45.2 2.0 1.7 75.0

Netherlands 9,8* 3837* na 3.9 4.5 80.2

Norway 8.9 4763 84.1 3.9 3.5 80.6

Poland 6.4 1035 70.8 2.2 6.4 75.4

Switzerland 10,8* 4417* 59.3 3.9 3.5 81.9

United Kingdom 8.4 2992 81.7 2.5 3.4 79.1

United States 16.0 7290 45.4 2.4 3.1 78.1

Source: OECD health data 2009 *=estimates

82 Disparities in health expenditures across OECD countries (30 September 2009) 83 Health care costs as % of GDP 84 Per capita expenditure on health (USD) 85 % of health costs paid by government 86 Physicians per 1000 people 87 Total hospital beds per 1000 people 88 Life expectancy

- 100 -

The Healthcare Sector in Curaçao: Some Figures

The rise of healthcare costs is also a problem in Curaçao. The total costs of health

care are estimated at 13 to 14 percent89

of GDP. There is a structural deficit in

financing healthcare costs. Research shows that total healthcare spending had an

annual growth of 4 percent over the 2000-2004 period90

. In the tables below, more

recent data on medical costs incurred by the Social Insurance Bank (SVB) and the

Health Cost Bureau (BZV) are described. The SVB data do not include costs such as

administration costs and costs for loss of income due to illness. The total medical

costs of the SVB increased by 34.2 percent between 2005 and 2008, and the average

medical costs per insured increased by 16.6 percent between 2005 and 2008.

89 Source:Strategisch plan Gezondheidszorg Curaçao 2007-2010 90 Source:Integraal zorgbeleid: basisconcepten (15 december 2008)

- 101 -

Table 2.18 Curacao Medical costs of cure BZV

NAf x Millions PP-Patients Civil servants Retired ex servants91

Health care field 2008 2009 2008 2009 2008 2009

Pharmacies/ medical devices

(NAf)

46.7 47.9 5.3 5.4 4.7 4.7

General practitioner(NAf) 4.6 4.2 1.5 1.6 0.280 0.270

Hospital health care(NAf) 49.9 52 4.9 5.5 4.2 4.4

Laboratory(NAf) 5.9 5.8 1.4 1.3 0.661 0.668

Ambulance(NAf) 1,9 1.6 0.078 0.066 0.094 0.136

Preventive care(NAf) 0.65 0.44 0 0.088 0 0.044

Paramedics, midwifes and

alternative medicine(NAf)

2.8

2.8

1.1

1

0.191

0.184

Specialists(NAf) 11.2 11.4 2.9 3,1 1.4 1.4

Dentistry(NAf) 1.9 1.8 1.3 1.4 0.188 0.184

Home care(NAf) 8.1 8.3 46.2 0.031 0.252 0.252

Medical dispatches 10.3 4.9 1.7 1.6 0.659 0.766

Total medical cure costs

Curacao (TMCC) (NAf)

144 141.4 20.4 21.4 12.7 13.1

SVB expenses(NAf) (4.80) (0.22 )

Funds administration (NAf) 0.48 0.48

Total 139.2 141.1 20.4 21.4 13.2 13.5

Premium Income(NAf) (4.9) (4.9)

Total EGV* expenses 8.3 8.7

Increase (%) of total costs compared to previous year

3% 1.4% 5% 5.1%

Number of insured per 1 July 35347 32762 9663 9358 7699 8,262

Premium Income per

person(NAf)

(0.003) (0.003 )

Average costs per insured

person(NAf)

3,937 4,308 2,108 2,287 0.005 0.005

Increase (%) in average costs per insured

3% 9.4% na 8.5% na 9.4%

Source: Beleidsbegroting BZV

91 Retired workers from Royal Dutch Shell who were making use of the bankrupted National Health Service`Asosiashon Kuido Mediko´ and retired Dutch Caribbean Airlines workers

- 102 -

Table 2.19 Total medical costs of Social Insurance bank (SVB)

Health care field (NAf) 2005 2006 2007 2008

Pharmacies/medical devices 24,316,763 25,650,157 28,835,122 32,581,045

General practitioner 8,358,686 8,681,358 9,060,483 10,278,547

Hospital health care 34,045,592 34,586,295 38,769,807 43,701,211

Laboratory 6,101,327 5,846,842 8,200,888 9,763,095

Other 2,616,057 3,996,889 4,257,592 8,466,381

Paramedics, midwifes and

alternative medicine

3,422,761 3,388,204 3,792,810 3,479,208

Specialist 12,482,650 13,905,143 14,804,958 14,780,310

Dentistry 309,944 208,287 375,514 8,221

Home care 184,621 200,161 162,258 150,807

Total medical costs Curacao

(TMCC)

91,838,401 96,463,337 108,259,432 123,208,824

Increase (%) of TMCC compared

to previous year

na 5.0% 12.2% 13.8%

TMCC as % of TMC SVB

Netherlands Antilles

71.6% 70.8% 73.6% 71.3%

Average number of insured 65,466 67,756 71,513 75,332

Average medical costs per insured person

1403 1424 1514 1636

Increase (%) in average medical

costs per insured

na 1.5% 6.3% 8.0%

Source: SVB

The Healthcare Sector in Curaçao: Insurances

Several health-insurance systems exist in Curaçao. The Social Insurance Bank

(SVB)—sponsored by the Central Government of the Netherlands Antilles—which

has a branch on each of the five islands and is headquartered on Curaçao, provides

health-insurance coverage for employees of nongovernmental organizations and the

private sector. The costs of health-insurance benefits are covered through the

premium system. The premium system implies that the employer, the government

and the employee each contribute to covering the health costs. The health-insurance

premium is 12.5 percent, of which the employer contributes 8.3 percent, the

employee 2.1 percent and the government 2.1 percent.

Pro-Pauperi (PP) Insurance is a health-insurance coverage provided by the Island

Government of Curaçao for the unemployed and the population up to a stipulated

maximum income. Civil Servant Health Insurance is provided by the island

territorial governments. Both PP-insurance and civil-servant health insurance are

provided by the Health Cost Bureau (BZV).

On the other hand, private health insurance is mandatory for people earning an

annual income which exceeds a stipulated maximum income (NAf. 57.174,00 per

- 103 -

year for 2010). SVB and BZV together comprise approximately 84 percent of the

healthcare sector of Curaçao92

.

Healthcare Sector of Curaçao in More Detail

The rising costs in the healthcare sector in Curaçao require new measures to achieve

a manageable system of purchasing health care. This need keeps growing because of

the aging population93

, which drives up healthcare spending through the demand

side, the shrinking base of the workforce that needs to pay for the costs and the

open-end character of the insurance policy (with no personal liability or maximum

―consumption‖) for the different groups of the insured people who have few

incentives to save on costs. There are many reasons to mention for the high

healthcare costs. Below, the most important ones are described:

Healthcare policy

In the last couple of years, the government has been paying more attention to the

health sector and many plans and policy papers have been written. Although not all

the plans and reports have led to clear and coherent policies yet, the Government is

in the process of implementing some of the policies proposed. A coherent healthcare

policy will lead to transparency, clearness, less resistance and cost reductions.

For example, for many years there was no policy for the establishment of practices

by general practitioners, leading to an uncontrolled increase in their numbers. Beside

the fact that there was no policy on the required number of such practitioners, there

were no structural rules on quality either. Any medical-school graduate could

practice as a general practitioner. It was not mandatory, for instance, for them to

have completed their specialization as general practitioners. This may result in their

referring patients more often and sooner to a specialist, which leads to unnecessarily

higher cost in secondary care94

.

The Organizational Structure of the Healthcare Sector

The organization of health care in Curaçao is not very well integrated95

, meaning,

among other things, that there is not enough cooperation between the different

players in the healthcare field. Decisions by the government are made mostly ad hoc.

There is a variety of legislation in place to organize the health sector, making the

structure complicated and less transparent. The information is not linked to any

central system, which makes it very difficult to have any control or to make

decisions. At the same time, the lack of adequate and up-to-date data (for example:

92 Source: Strategisch plan Gezondheidszorg Curaçao 2007-2010 93 In 2025, if the trend continues unchanged, approximately 25.6 percent of the population will be older

than 60 years. In 2009 this percentage was 17 percent. Source: www.cbs.an 94 Source:Santu Remedi, Een vestigingsbeleid in de Gezondheidszorg voor het Eilandgebied Curaçao 95 Source: Pijnlijike keuzen bij schaarse middelen: De gezondheid nader bekeken, 2002

- 104 -

economic health data, usage data or more care-related data) and accessible

registration hamper a thorough analysis of the health system96

. Another

organizational-structure problem is the fragmentation of the healthcare institutions

and the fact that most specialists have no close links to the hospital, because of also

having their own practice (the so-called ―ofisinas‖). With the construction of the

new hospital, it is the intention of the government to turn it into a medically-

specialized integrated business (Medisch-Specialistisch Geintegreerd Bedrijf) with

all specialists working together. From that moment on, activities outside the hospital

should no longer be covered. Finally, another factor that leads to high costs is the

structure of the drug industry97

. Both the importer and the pharmacist earn a profit

margin on most medicines, which means that they can earn more by selling more of

the expensive brand drugs instead of generics.

The Financial Structure of the Health Sector

In Curaçao, there is a structural deficit in financing healthcare costs, partly because

the premium income is not enough to cover all costs. One of the problems involved

is the insurance package for the unemployed, which covers a wide range of care

without any limit, while the insured does not have to pay a premium (fully

subsidized). Generally, healthcare consumers (patients) all over the world are not

aware of the costs involved and do not have many incentives to lower ―their

consumption,‖ because most patients have medical insurance. As mentioned

previously, there is also a lack of adequate and up-to-date economic health data,

which makes it difficult to analyze and monitor the factors leading to high costs. The

Department of Economic Affairs determines most of the tariffs for the healthcare

sector. Another complication is the complexity and incoherency of the systems of

tariffs handled by the two largest consumers (BZV and SVB together account for

approximately 84 percent of the total healthcare costs) of health care. For example,

BZV and SVB apply different tariffs for exactly the same treatment.

Policy Measures and Healthcare Developments in Curaçao

As described earlier, at this moment the Island Territory of Curaçao still lacks a

clear and coherent healthcare policy, but different measures are being undertaken,

while others are planned, in order to optimize health care and control for example

the healthcare costs or to improve the quality of health care, such as:

Cost/Tariff Model

At the government‘s request, the advisory company Tragpi has developed new,

transparent and fair cost/tariff models for medical practitioners. The plan was

completed in May of 2010 and presented to the Island Council of Curaçao to be

96 Source: Integraal zorgbeleid: basisconcepten 97 Drug costs account for approximately 20 percent of the total costs

- 105 -

decided on. The intention is to introduce the new tariffs by January of 2011. A good

cost model allocates costs to the right patient and clearly shows the links between

costs, resources, procedures and patient groups, making it easy to analyze relevant

costs. Cost models are also a tool that support investment decisions and allow you to

forecast the effects of certain changes.

The Development and Maintenance of an Economic Health Model

The development and maintenance of an economic health model, like a ―Financial

Overview of Health Care,‖ to support policy development and evaluate current

policies with up-to-date and relevant figures; such a model also makes it possible to

compare figures for Curaçao with those for other countries (if the International

Classification of Health Accounts (ICHA) is used). According to the CBS, the last

available FOG dates from the year 2006.

Medical Tourism

The Government of Curaçao identified Medical Tourism as a way to ―capitalize on‖

the healthcare sector. Medical Tourism can generate revenues from and for the

healthcare sector. In 2009, the ―Medical and Care Tourism‖ committee completed,

on behalf of the Government, their recommendations for the successful development

of medical and care tourism and the associated conditions in Curaçao. Medical

tourism can offer many advantages, such as additional external funds (revenues)

which could lessen the pressure on the healthcare system, lower tariffs through

economies of scale, upgrading of local knowledge and quality and ―spin-off‖ effects

for the economy of Curaçao as a whole. The Government should act as a facilitator

for the successful development of the medical-tourism sector. For example, it should

ensure clarity of information on all legal conditions.

Construction of the New Hospital

The organizational preparations for the construction of a new hospital and the

corresponding medical-specialized integrated business (Medisch-Specialistisch

Geintegreerd Bedrijf): That will, among other things, generate more cooperation and

eliminate the costs of the so-called ofisina‘s. In December of 2009, a foundation

named ‖Fundashon Hospital Nobo (FHN)‖ was established to pull the project for the

construction of a new hospital. In June 2010, the Island Council of Curaçao

approved FHN‘s plan for the construction of a new hospital with 370 beds at Groot

Piscadera. The current design of the hospital in Deventer (the Netherlands) serves as

the starting point, and the total investment for the project amounts to NAf. 430

million. After the approval, the FHN continued with its further design.

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Merger of BZV and SVB

The planned merger or integration of the Health Cost Bureau (BZV) and the Social

Insurance Bank (SVB): This merger will result in economies of scale and cost

reductions through better efficiency and coherency in tariffs.

General Health Insurance

Preparation for the introduction of general health insurance (AZV) for every citizen:

This should lead to standardization of tariffs and a general insurance package with

new care contracts. The BZV believes that cost reductions are only possible if the

new health insurance includes incentives to control demand through the introduction

of ―personal liability,‖ and to control the quality of supply by introducing the ―pay-

for-performance‖ principle. Providers under the ―pay-for-performance‖ arrangement

are rewarded for meeting pre-established targets for delivery of healthcare services.

This is a fundamental change from the current fee for service paid.

Council for Public Health

The establishment of the Council for Public Health in 2005: The board gives

solicited or unsolicited advice on important matters relating to public health. At the

same time, the Board will be informed of major proposed changes in public health

policy. In April of 2010, the Island Council of Curaçao established the ―Gemengde

Ambtelijke Commissie Raad voor de Volksgezondheid‖ committee. This committee

will present a proposal on the new organization of the Council for Public Health

after Curaçao becomes an autonomous country within the Dutch Kingdom.

Establishment Policy for Medical Practices

A policy for the establishment of medical practices and healthcare facilities: An

establishment policy makes it possible to manage the needed quantity and quality of

such healthcare providers. A systematic and planned control of healthcare supply

can only be ensured by means of legislative measures. The Government has several

motives for regulating the establishment of medical practices, such as being able to

provide minimum and comparable-quality requirements, achieving good

geographical distribution, achieving a balanced supply of different kinds of facilities

and gaining control over healthcare spending. The implementation of the ―Santu

Remedi‖ report (with regulations on the number and quality of medical practices)

and the introduction of the ―Landsverordening Zorginstellingen‖ (National

Ordinance on Healthcare Institutions) are already underway.

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Prevention Policy

Prevention policies: For example, overweight-prevention programs, the promotion

of healthy lifestyles and the HIV/AIDS prevention ―talk red‖ campaign. Good

prevention programs avoid future costs.

Introduction of the Electronic File

The introduction of an electronic client file: The main advantages of electronic client

files are easier and better exchange of information between medical professionals

(efficiency) and the possibility of using the file as a source of input for further

research.

Introduction of a Fixed Prescription Fee System

Measures for drug-cost reduction: One such measure is that, in 2010, the BZV will

introduce a fixed prescription fee (Receptregelvergoeding RVV). This system

implies that pharmacies will be paid a fixed fee or tariff for the work they do in

giving medication to patients instead of a margin above their purchase price. In this

way, the pharmacist has no financial interest in delivering expensive drugs and has

therefore a more independent position in the choice of drug. This system should help

reduce drug costs. The introduction of this new compensation system will lead to a

shift in pharmacies‘ revenues and the costs incurred by insurance companies.

Initially, the government used the SVB‘s data to calculate the fixed tariff. The

pharmacies argued that these data were not representative of the total spending on

medications in Curaçao. The Association of Pharmacy Owners (VAE) feared a

heavy decline in pharmacy revenues. That is why the association approached the

Dutch foundation for Pharmaceutical Ratios (SFK) to investigate the effects of the

new compensation system based on accurate and complete data. The research

confirmed their fear of declining revenues. The tariff based only on the SVB‘s data

leads to a decline in overall pharmacy revenues by 32 percent. The Government and

pharmacies are now again in discussion about the tariffs. The

―receptregelvergoeding‖ system is used in many other countries, including the

Netherlands. In the Netherlands, the average regular tariff for the delivery of a

prescription drug was set at € 7.91 for 2010, against € 7.28 in 2009. Over the years,

a few adjustments were applied, such as the difference between night, weekend and

day tariffs.

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CHAPTER 3 The Crossroad to an Autonomous Country within the

Dutch Kingdom

10-10-‘10

As of October, 10, 2010, the Netherlands Antilles, a group of five Caribbean

islands—Curaçao, Bonaire, St. Maarten, Saba and St. Eustatius—which now make

up a single country within the Kingdom of the Netherlands, will cease to exist as a

country. In this respect, Curaçao and St. Maarten will attain a country status similar

to that of Aruba within the Kingdom of the Netherlands, while Bonaire, Saba and St.

Eustatius (BES islands) will become public entities of the Netherlands (equivalent to

Dutch municipalities).

At present, the Kingdom of the Netherlands consists of three countries: the

Netherlands, the Netherlands Antilles and, since it ceased being part of the

Netherlands Antilles98

, Aruba. This constitutional change comes as a result of the

referendum99

held on Curaçao on April 8, 2005, in which citizens of Curaçao

expressed themselves in favor of an autonomous position for the island within the

Dutch Kingdom. This implies that, as of October, 10th

2010, the Kingdom of the

Netherlands will consist of the Netherlands (including the BES-islands), Aruba,

Curaçao and St. Maarten.

In this respect, the main effects of Curaçao‘s new constitutional status will be

expound as they relate to the sustainable economic development of the new country

of Curaçao.

Social Economic Initiative

Within the process leading to the new constitutional status for Curaçao, the

government unfolded several initiatives aimed at achieving sustainable growth for

the new country. In line with these, the local government and that of the Netherlands

agreed to develop a social economic initiative (SEI) geared at implementing a

structural approach to the present social economic backlogs, in order to achieve

sustainable improvements in the social-economic perspectives of the community of

Curaçao.

The SEI facilitated the implementation of policy measures to, i.a:

98 Aruba seceded from the Netherlands Antilles and officially became a country in the Kingdom of the

Netherlands on January 1, 1986. 99 Please note that on the other islands (Bonaire, St. Maarten and Saba) referendums on self-determination were held between 2000 and 2004

- 109 -

- reform the economy by strengthening the economic structure and developing a

long-term economic strategy;

- reorganize government finances.

Reforming the Economy

Long-Term Economic Strategy

At the crossroad of the island‘s new autonomous status, the Island Council of

Curaçao had to choose this new country‘s economic destiny, with the objective of

achieving sustainable economic growth for the community. In light of this, the

following economic vision was agreed.

By 2025, Curaçao will achieve an economy of wealth creators that creates and

delivers high-value on a continuous basis; is recognized as an important hub in the

global value chains; acts as a multifaceted „Portal‟ facilitating international trade;

and that, as a result, Curaçao will be able to sustain a high quality of life and

collective well-being for its citizens.

This economic vision aims at achieving sustainable development by undertaking

major reforms to turn around the present economy. The main concept of the

economic vision is directed at the concepts:

- ―high value-added‖ economy;

- international trade position;

- sustainable high quality of life and collective wellbeing.

Strengthening the Economic Structure

In addition to the formulation of a long-term economic strategy in line with the

economic vision and strengthening the economic structure by improving the

investment climate, the Government of Curaçao has been committed to

implementing effective policy measures for 2009–2010, which underpin a structural

improvement of the investment climate in order to attract investments that produce

growth on a sustained basis.

The proposed policy measures resulting from both the Social Economic Initiative

and the policy agenda 2009–2010 are directed toward the following five fields:

- Reduction of unnecessary regulation and administrative charges

The objective is to reduce ―red tape‖ for entrepreneurs by simplifying and

streamlining procedures to obtain business permits, which is a prerequisite to attract

more investments and boost employment.

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- Streamlining and centralizing investment promotion

The aim is to make the Curaçao Economic Development Board (CEDB) operational.

The CEDB is meant to facilitate the new country of Curaçao‘s economic

development through investment promotion and acquisition of both local and

foreign investments.

- Formulation of a competition policy

The intention is to stimulate competition through an effective competition policy,

which is also a valid prerequisite to strengthening the economic structure. The policy

is directed at promoting an effective free-market system by fostering fair

competition through supervision in general terms, by a competition authority which

acts on the principles of ex-post and supervision of specific market segments by

institutionalizing a regulatory authority when dealing with natural monopolists. The

regulatory authority acts through ex-ante measures until a certain level of

competition has been reached. Both measures have a positive effect on the cost of

doing business and, logically, also on the investment climate. Both measures will

help to restrain inflationary pressure.

- Implementation of the labor market policy

The objective is to enhance labor-force participation and labor supply to meet the

demand.

- Promoting entrepreneurship and improving the capital market

The policy intention is to strengthen SMEs by stimulating entrepreneurship,

creativity, innovation and availability of financing to better meet the challenges of

the current competitive trade markets. The SME sector is confronted with different

barriers, including lack of accessibility to the capital market, which is being

disturbed by structural budget deficits in the public sector.

It is expected that the accessibility to the capital market will improve without further

specific SEI measures due to greater availability of funds as a result of the debt relief

in the public sector (see also the section on Debt Repayment). Additionally, it is

expected that, also as a result of the debt relief, finances for private-sector

investments will be available on more competitive conditions. Less government

borrowing on the financial market will exercise a downward pressure on domestic

interest rates.

- A competitive tax policy

The tax system needs to be simplified. The introduction of a new fiscal policy aims

to increase compliance and contributes to a better investment climate on Curaçao.

The Government has approved the implementation of an integrated Tax Department

(Nieuwe Belasting Dienst) which offers the opportunity to improve both the tax

policy and the tax administration. As regards the tax policy, the aim is to achieve a

proper balance between indirect and direct taxes by lowering corporate and income

taxes and slightly increasing the turnover tax.

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The operational aspects which drive the New Tax Department towards operational

efficiency include:

a. Simplifying tax forms, processes and procedures;

b. Shortening the response time on questions and requests from taxpayers;

c. Introducing electronic filing of tax declarations;

d. Applying more specialist-specific training tools at the Inspectorate of

Taxes;

e. Introducing a management-information system to facilitate performance

evaluations.

Government Finance and Government Organization

In addition to reforming the economic structure, the SEI also provided the

opportunity to both improve government finances and design an effective and

efficient structure for the public organization.

- Improve government finances

The policy measures to improve government finances are aimed at:

a. improving the preparation of the long-term government budget

b. introducing both a new code on corporate governance and a state subsidy

policy

c. improving the collection of taxes and other revenues.

- Integrate the two layers of government

The present double-layered government presents an obstacle to the decision-making

process for policies and projects (unnecessary procedures and bureaucracy), which is

very counterproductive.

A single level of government will lead to less government bureaucracy and a lower

administrative burden, which will contribute to the sustainable economic

development. The policy measures are directed to:

a. develop competence

The government apparatus must be adequately staffed so that the

supervision of the apparatus can be steered towards output, which is a basic

principle to an effective and payable government apparatus.

b. improve basic administration

Improving a number of indispensable basic administrations and putting

them into operation is a precondition to:

increasing effectiveness of policies by improved

information;

improving service through univocal registration and

establishing basic data;

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reducing costs;

reducing fraudulent practices and;

increasing the quality of statistical information.

Monetary Affairs

The new constitutional status also exposes Curaçao to challenges in the area of

monetary policy.

In the new constitutional structure, Curaçao and St. Maarten will form one monetary

union. A monetary union requires a high degree of policy coordination and

harmonization to ensure a balanced and effective monetary policy. In this respect,

besides the free movement of services, goods, labor and capital between, in this

case, the countries of Curaçao and St. Maarten, the monetary union also requires

strong political commitment.

Debt Repayment

The new constitutional structure also provides a good financial starting position for

the new country of Curaçao. In this framework, the Netherlands started to relieve

Curaçao‘s debts up to a level in line with the interest-burden norm

(―rentelastnorm‖).

This implies, i.a.:

- that the government‘s interest burden (of loans) may not exceed 5 percent of the

average revenues in the three previous years.

- that debts up to December 31, 2005 will be paid (including loans to refinance

the debt position up to December 31, 2005 and those to refinance interest

charges of the debt position up to December of 2005).

The conditions emanating from the debt relief are:

- financial supervision by a supervisory authority;

- balanced current budget;

- interest burden may not exceed 5 percent of the average revenues of the three

previous years;

- improved financial management and control (Curaçao must establish a reliable

balanced budget and a balanced long-term perspective on the basis of the 5-

percent interest-burden norm).

The consequences of the stipulated conditions attached to the debt relief program

will lead to, among others things:

- a substantial inflow of liquidity which will exert a downward pressure on

interest rates, resulting in availability of funds (at competitive interest rates for

the private sector);

- 113 -

- lower interest rates, exerting an upward pressure on domestic consumption and

investments, which will have a significant positive effect on economic growth.

Conclusion

At the crossroad of a new constitutional status for Curaçao, the opportunity has

presented itself to address the most primary financial, economic and social100

issues

in a more island-specific context. This resulted in the implementation of

fundamental policy measures to guarantee a sound starting position for the new

country of Curaçao at the onset of its new constitutional situation. Source:

- „Sociaal Economisch Initiatief Curaçao; Bouwen aan een zekere toekomst‟,

March, 2008

- Netherlands Antilles fiscal commission “removing obstacles to growth and

restoring jobs in Curaçao; issues, strategic agenda, and implementation”, June,

2007

- „Uiteenzetting voor- en nadelen van de opties voor de centrale bank voor de

nieuwe landen in het Koninkrijk‟, July, 2006

100 Please note that in this release only the economic and financial consequences were treated.

- 114 -

- 115 -

APPENDICES :

APPENDIX I: METHODOLOGY

The different sections were assigned to policy advisors at the Department of

Economic Affairs based on their expertise on particular economic sectors or topics.

The articles are based on:

• Information provided by agencies such as the Central Bureau of Statistics,

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 formulated their

analysis of specific economic sectors or topics as neutrally and objectively as

possible. Information gained through interviews with stakeholders was used with

caution, keeping in mind the potential subjectivity of the stakeholders. The draft

articles were discussed with the stakeholders to avoid any possible misinterpretation

of the information provided.

The quantitative macroeconomic calculations and projections in the Economic

Outlook for 2010 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 international 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

calculate the tourist industry‘s impact on various economic variables.

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APPENDIX II: LIST OF TABLES & FIGURES

Chapter 1

Table 1.1. Key economic indicators

Table 1.2. Baseline scenario

Table 1.3. Optimistic scenario

Table 1.4. Pessimistic scenario

Table 1.5. Labor market indicators 2005-2009

Table 1.6. Financial report of the Island Government of Curaçao for 2009

Table 1.7. Balance of payments of the Netherlands Antilles

Figure 1.1. Selected unemployment rates

Figure 1.2. Interest rate development

Chapter 2

Table 2.1. Investments in agriculture, livestock and fisheries

Table 2.2. Factors that influenced the financial result for 2009

Table 2.3. Utilities in 2008 and 2009

Table 2.4. Building permits statistics

Table 2.5. Index figures raw materials

Table 2.6. Recent total visitors e-zone Koningsplein

Table 2.7. Countries of origin of the visitors

Table 2.8. The established service e-zones

Table 2.9. Aircraft traffic at Hato airport

Table 2.10. Air freight by weight

Table 2.11. Air freight

Table 2.12. Freight cargo

Table 2.13. Arrival development in main markets

Table 2.14. Overview key financial figures 2009/2008

Table 2.15. Specification of accounts

Table 2.16. Overview insurance companies in Curaçao

Table 2.17. OECD country comparisons of some health statistics

Table 2.18. Curacao: medical costs of cure BZV

Table 2.19. Curacao: total medical costs of Social Insurance Bank

Figure 2.1. International crude-oil price development

Figure 2.2. Export destinations in percentages per country

Figure 2.3. Fuel-oil sales

Figure 2.4. Sales of jet fuel in 2008 and 2009

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Figure 2.5. Amount of companies in different sectors

Figure 2.6. Share of wholesale and retail in Curaçao‘s GDP

Figure 2.7. Actual passenger traffic at Hato airport

Figure 2.8. General aviation & commercial flights developments

Figure 2.9. Number of calls by ship type

Figure 2.10. Cruise tourism

Figure 2.11. Average Hotel Occupancy Rate

- 118 -

APPENDIX III: LIST OF ABBREVIATIONS

AFTK Available Freight Tonne Kilometrs

AIA America Institute of Architects

ASEAN Association of Southeast Asian Nations

ASK Available Seat Kilometers

AZV General health insurance plan

BES Bonaire, St. Eustatius and Saba

BNA Central Bank of the Netherlands Antilles

BOO Build, Own and Operate

BOP Balance of Payments

BRIC Brazil, Russia, India and China

BTP Bureau for Telecommunications and Post

BZV Foundation Bureau medical expenses services

CADIV Commission for the Administration of Currency Exchange, Venezuela

CAFTA China-ASEAN Free Trade Agreement

CAH Curaçao Airport Holding N.V.

CAI Curaçao Airport Investments N.V.

CAP Curaçao Aiport Partners

CARILEC Caribbean Electric Utility Service Corporation

CBS Central Bureau of Statistics

CDM Curaçao Dry Dock

CEDB Curaçao Economic Development Board

CHATA Curaçao Hospitality and Tourism Association

CIFA Curaçao International Financial Services Association

CIS Commonwealth of Independent States

CPA Curaçao Port Authorities

CPS Curacao Port Services

CTB Curaçao Tourist Board

CTO Caribbean Tourism Organization

Curinde Curaçao Industrial & International Trade Development Co. N.V

Curiol Curaçao Oil N.V.

DAE Dutch Antillean Express

DCSX Dutch Caribbean Stock Exchange

DEZ Department of Economic Affairs, Curaçao

DMO Down Town Management, Curaçao

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EIA Energy Information Administration

EPZ Export Processing Zone

EZ Economic Zone

FATF Financial Action Task Force

FHN Foundation for the construction of the new hospital

FOG Financial Overview Healthcare

FRICH Food Retail Industry Challenge Fund

FTA Free Trade Area

FTK Freight Tonne Kilometers

GDP Gross Domestic Product

IATA International Air Transport Organization

ICHA International Classification of Health Accounts

IDB International Development Bank

ILO International Labor Organization

IMF International Monetary Fund

ISLA Curaçao Refinery Company

ISO International Organization for Standardization

KTK Curaçao Tugboat Company

LAC Latin America and the Caribbean

LVV Department of Agriculture, Livestock Breeding and Fisheries

MENA Middle East and North Africa

MOT Unusual Transactions Reporting Center

MW Mega watt

NAF Netherlands Antilles Guilders

OBNA Development Bank of the Netherlands Antilles

OECD Organization for Economic Co-operation and Development

OPEC Organization of Petroleum Exporting Countries

PdVSA Petroleos de Venezuela

PPA Power Purchase Agreement

RdK Curaçao Refinery

RPK Revenue Passenger Kilometers

SEI Social Economic Initiative Curaçao

SFK Dutch foundation for Pharmaceutical Ratios

SMEs Small and medium-sized enterprises

SOLTUNA Agriculture Research Foundation