Will Foreign Direct Investment Help or Hinder SDG Achievement in the Caribbean?

Will Foreign Direct Investment Help or Hinder SDG Achievement in the Caribbean?

Alicia Nicholls

Caribbean small island developing States (SIDS) joined with other United Nations (UN) members to sign on to the UN Sustainable Development Goals (SDGs) in 2015. These 17 goals and their 169 targets form the 2030 Agenda for Sustainable Development, agreed in 2015, covering areas as diverse as no poverty, zero hunger, gender equality, climate action, peace justice and strong institutions, inter alia. The SDGs are indivisible and ambitious, balancing all three components of sustainable development: economic, environmental and social. 

The decade 2020-2030 has been designated the ‘Decade of Action’ for stepping up action and financing to achieve the global goals by 2030. However, financing SDG achievement is an expensive task, compounded by the economic and social fall-out from the novel coronavirus disease (COVID-19) pandemic, starting in December 2019. The SDGs require significant resource mobilisation and the scaling-up of investments in people, infrastructure, innovation and technology, if the 2030 deadline is to be met. A pre-COVID-19 estimate by UNCTAD (2014) placed developing countries’ SDG financing gap at US $2.5 trillion dollars per annum, based on then current levels of investment, and this number is likely much larger, in light of the pandemic. The 2030 deadline requires countries to mobilise financing from a variety of sources: domestic and external, public and private. Without doubt, attracting greater private capital flows, such as foreign direct investment (FDI), is necessary to supplement increasingly constrained domestic public sources. 

This article aims to critically discuss to what extent FDI can help or hinder Caribbean countries’ achievement of the SDGs. It does so by discussing Caribbean countries’ current SDG performance, and whether the region’s extant FDI policy approaches are helping or hindering. Ultimately, the article argues that attracting FDI will not automatically be conducive to sustainable development. Targeted interventions are needed to ensure that FDI flows are channeled towards SDG-related sectors, in a sustainable, and socially and environmentally responsible manner. It is also argued that, given FDI’s procyclical nature, foreign investors should not be privileged over domestic and diaspora investors that, due to sentimental attachments, are more likely to retain investments or even reinvest there during periods of hardship for the home State. 

Caribbean Countries’ SDG Performance

The Sustainable Development Solutions Network (SDSN) Sustainable Development Report 2021, released on 14 June 2021, described 2020 as a ‘setback for sustainable development’ globally. It was also the first year for which there was a global reversal in progress towards achievement of the SDGs, due largely to the rise in poverty and unemployment. Similarly, the COVID-19 pandemic has been both a public health crisis and economic shock for Caribbean SIDS. In 2020, regional economies, to varying extents, suffered sharp GDP declines (Guyana excepted), rising unemployment, and increasing debt levels as a result of the pandemic.  

Although data shortages prevent many SIDS (including in the Caribbean) from being ranked on the SDSN SDG Index 2021, the results for those ranked are revealing. Among countries of the Caribbean Community (CARICOM), Jamaica is the highest ranked on the SDG Index 2021 at 81 out of 165 countries, with a score of 69—a slight improvement from its score of 68.7 (out of 100) on the 2020 index. Jamaica is followed in rank by Barbados (83), Suriname (91), Belize (104), Trinidad & Tobago (108), Guyana (128) and Haiti (150). Jamaica and Barbados were the only two CARICOM countries to see an improvement (albeit modest) in their overall score compared to 2020 levels. Suriname, Belize, Trinidad & Tobago, Guyana and Haiti saw declines in their overall scores towards SDG progress.

Although work is on-going, as yet, there is no size estimation for the Caribbean’s SDG financing gap. However, it will doubtless be large, considering the region’s financing constraints versus its needs. The COVID-19 pandemic has not only reversed some of the gains these countries have made towards SDG achievement, but has negatively impacted their already constrained ability to finance further achievement of the SDGs. In order to rebuild for resilience post-COVID-19, domestic and foreign private foreign capital inflows must supplement increasingly limited public revenue sources, due to a declining tax base. Borrowing is not an attractive option, due to growing debt levels and many Caribbean countries’ ineligibility for most forms of concessional financing and official development assistance (ODA).

Therefore, attracting private capital inflows, such as FDI, appears to be the most feasible option to help Caribbean countries—not only to kickstart their post-COVID-19 recovery, but to help meet their SDG financing shortfall. Among the generally touted benefits of FDI are employment generation, knowledge, skills and technology transfer, increase in exports and economic growth, all of which lend towards SDG 8 (decent work and economic growth) and SDG 9 (industry, innovation and infrastructure). However, these benefits are not automatic, and not all FDI can be considered to be supportive of sustainable development. 

To what extent do Caribbean countries’ approaches to FDI cohere with the goal of attracting FDI for sustainable development? 

FDI Policy Context in the Region

Caribbean countries are net-FDI importers, and generally have very open regimes for foreign investment. Most have pursued—to varying extents—the Industrialisation by Invitation model outlined in the 1950s by the late St Lucian-born Nobel Prize Economics laureate Sir W Arthur Lewis. This model was based on Lewis’s observation of Operation Bootstrap in Puerto Rico; he argued that in order to diversify from monocrops to industrialised economies, Caribbean countries should attract foreign capital to establish in their countries through inter alia careful incentives.

The real task, however, is not to simply attract a greater quantity of FDI inflows, but quality FDI, which helps rather than hinders sustainable development. To do so, countries require the proper policy and legal toolkit with which to ensure that the FDI attracted is channeled towards SDG-related sectors, and in an environmentally and socially responsible manner. Caribbean countries’ domestic laws regulating investment tend to be found in various Acts. Guyana, Haiti, and Trinidad & Tobago, however, also have sui generis investment Acts: the Guyana Investment Act (Act 1 of 2004), the Haiti Investment Code, and the Trinidad & Tobago Foreign Investment Act of 1990. These Acts generally include some investor protections, such as national treatment—the requirement to provide the same treatment for both foreign and domestic investors. A review of the laws and policies of Caribbean countries (where available) dealing with investment generally evince little mainstreaming of the SDGs or of sustainable development, as most of these predate the SDGs. An exception is Belize whose National Investment Policy and Strategy incorporates the SDGs. 

There is limited data on FDI flows disaggregated by sector for Caribbean countries. It is, however, known that FDI mainly goes to non-SDG-related sectors; mainly tourism, financial services and extractive industries. In more recent times, there has been FDI in newer, SDG-related sectors such as education (such as offshore medical schools), renewable energy, and health (such as medicinal cannabis and the manufacture of medical supplies).

Caribbean countries offer a variety of fiscal incentives to investors under legislation, and also in investor-State contracts. This latter point has provoked public concern, not only because of the lack of transparency with these investor-State contracts (which are not made public), but what many argue to be overly generous concessions given to investors, even at times of economic hardship in the host State. The calculation host governments generally make is that the revenue lost to the government from foregone taxes would be offset by the jobs created and economic activity generated from the investment, once established. However, there is often little, if any, publicly available information on whether this is actually the case. In Barbados, there was outcry in the hospitality sector over the concessions given to a foreign (albeit regional) hotel chain, leading the new government to extend the concessions granted by the previous government to domestic hoteliers as well. 

Caribbean international financial centres (IFCs) have also used competitive corporate tax rates to entice foreign financial services providers to establish themselves in the jurisdiction, as a base for servicing mainly foreign customers. In the international business sector, known now as the global business sector in Barbados, the attraction of foreign firms to set up on the island as a base for the export of financial services, and even goods, has generated direct and indirect employment, and facilitated skills transfer; it is the ‘bread and butter’ of many corporate services providers. Tax receipts from the global business sector account for the majority of corporate tax receipts in Barbados, and have been resilient even in the face of the COVID-19 pandemic. This, of course, has positive implications for SDG8 (Decent Work and Economic Growth). Additionally, Barbados has sought to attract FDI to help develop its fledgling medicinal cannabis industry, which benefits SDG3 (Good Health and Wellbeing). 

Naturally, having an open investment regime requires that a jurisdiction conduct proper due diligence on any prospective investor. Failure to do so inevitably causes reputational damage, as was the case when a major US investor in the Antigua & Barbuda economy for many years, Sir R Allen Stanford, was arrested and found guilty by US authorities of running a twenty-year Ponzi scheme. 

With an open investment regime, proper investment screening (pre-establishment) and monitoring (post-establishment) are needed, to ensure that the investment will not harm the environment and prejudice the achievement of environmental goals (such as SDG 13 (climate action), SDG14 (life on water) and SDG15 (life on land)). Minto (2019) reported on the non-compliance by a Chinese state-owned mining company with environmental regulations in Jamaica, leading to that country’s regulatory agency issuing several enforcement orders against the company.

Another tool is the IIAs signed by Caribbean countries. The region has signed a few free trade agreements (FTAs) with investment chapters; of these, the EU-CARIFORUM EPA (2008) and UK-CARIFORUM EPA (2019) are the most recent. However, the majority of Caribbean countries’ IIAs are bilateral investment treaties (BITs), most of which are ‘older-generation’ BITs signed in the 1990s-2000s, and lack the best practices of newer generation IIAs. These more recent agreements seek to rebalance investors’ rights with host States’ rights to regulate in the public interest, such as for environmental or labour protection purposes. The aim of BITs is to provide for the reciprocal protection and promotion of investment, and generally lack qualifiers, such as ‘for sustainable development’. While Caribbean SIDS have all signed at least one BIT, the extent of these countries’ BIT networks varies by country. 

In contrast with the EU/UK-CARIFORUM EPAs, the preambular text of most Caribbean countries’ BITs under study do not reference sustainable development in the preamble—which forms part of its context for the purpose of the interpretation of a treaty. The Suriname and Guyana BITs with Brazil are the only BITs which contain extensive security exceptions and investor obligations. These provisions are based on Brazil’s new model BIT, and are in line with international best practices. 

Caribbean countries have signed BITs for both economic and political reasons, believing that providing guaranteed protections to foreign investors would stimulate inflows of needed capital for economic development. Some BITs were also signed for political reasons, to strengthen economic ties with strategic partners. However, BITs bring risks. The experience of most Caribbean countries’ with investor claims thus far have been limited (with exceptions), and largely under contract-based disputes—but the threat of treaty-based claims is more acute in the midst of the COVID-19 pandemic. This is because Caribbean SIDS governments, like many governments around the world, have had to implement stringent measures to contain and mitigate the spread of the virus, and may face claims from aggrieved foreign investors seeking legal protection under these BITs. As the case of Dunkeld v Belize shows, account must also be taken of the costs incurred by SIDS in having to defend themselves against a claim, or having to pay arbitral awards where a decision is made against them.

While BITs are argued to have a ‘signalling effect’ of a host state’s commitment to investment protection and attraction, the academic literature remains unsettled as to the question of whether BITs have a significant impact on FDI attraction. Moreover, it is not even empirically proven whether the risk of signing IIAs is worth the reward for Caribbean countries. Except for sophisticated investors, it is doubtful to what extent the existence of a treaty with the investor’s home State is a major factor in the investment decision. An exception is perhaps the case of Barbados, where most of the FDI into its global business sector comes from Canada, with which Barbados has both a double taxation treaty and a BIT. However, most Caribbean countries do not have BITs with the countries which are their largest FDI-source markets, which casts some doubt on the extent to which BITs are critical tools for investment attraction in the region. 

FDI is also procyclical, as further evidenced by the 42% contraction in global FDI flows reported by UNCTAD in 2020. Additionally, Barbados, for example, witnessed a precipitous drop in real estate FDI inflows from the United Kingdom (UK) into its second home market, after the Brexit referendum result in 2016 caused the significant devaluation of the UK pound sterling relative to the US dollar. In the aftermath of Hurricane Maria’s devastation of Dominica in 2017, a major offshore medical university which had been domiciled there for many years relocated to another Caribbean country. 

This reiterates why Caribbean countries’ focus should not solely be on promoting and facilitating foreign investment, but also investment from their local private sectors and diaspora communities. According to the Commonwealth (2017), among the several benefits that scaling up diaspora investment offers for recipient countries, is the potential to provide ‘a more reliable resource flow that is not solely driven by the rate of financial return, particularly in the face of growing global uncertainty’. Due to sentimental attachment to the home State, domestic and diaspora investors are more likely to retain investments or even reinvest during periods of economic downturn. 


This article sought to critically discuss to what extent FDI can help or hinder Caribbean countries’ achievement of the SDGs. The simple answer is that it depends on the right laws and policies of the host State. Given the procyclical nature of FDI, countries’ investment facilitation and promotion policies should not privilege foreign investors, to the exclusion of domestic and diaspora investors. The article also calls for greater SDG mainstreaming in FDI laws, policies and IIAs, to ensure that the investment being promoted is channeled towards SDG-related sectors, and is consistent with domestic laws and regulations. Moreover, there needs to be more active encouragement by regional investment promotion agencies (IPAs) of investment in SDG-related sectors, and monitoring and evaluating the sustainable development impact of investments, if FDI is to truly have a transformative impact on SDG achievement. 

Alicia Nicholls is an international trade specialist whose research interests include foreign investment law and policy, financing for development, investment migration programmes, as well as global financial regulatory issues. She is currently part of the research team of the Shridath Ramphal Centre for International Trade Law, Policy & Services of The University of West Indies, Cave Hill Campus where she also lectures part-time in the SRC’s Masters of International Trade Policy (MITP) programme. Alicia is a frequent presenter on contemporary trade matters at academic and industry conferences and events and is the founder of one of the Caribbean’s leading blogs on trade matters: www.caribbeantradelaw.com. She also contributes articles to a variety of international and regional publications including IFC Review, AfronomicsLaw Blog, the Barbados Business Authority, among others.  She holds a Bachelor of Science in Political Science (First Class Honours), a Master of Science in International Trade Policy (with distinction) and a Bachelor of Laws (Upper Second Class Honours) from The University of the West Indies. She also holds the FITT Diploma in International Trade from the prestigious Ottawa-based Forum for International Trade Training (FITT), of which she is also a general member. She is an Advisory Board member of the Caribbean-ASEAN Council, a member of the Network of Experts of the Caribbean Chamber of Commerce in Europe (CCCE), a member of the Academy of International Business (AIB) and the International Studies Association (ISA). 

Print Friendly, PDF & Email
Business & Human Rights, Featured, International Human Rights Law, Investment Law, Latin & South America, Symposia, Trade & Economic Law
No Comments

Sorry, the comment form is closed at this time.