GRENADA The economy of Grenada is continuing its sustained period of growth this year, expanding by at least 5 percent in 1989. The five-year period of increased domestic production can be attributed to improvement in infrastructure and to a good investment climate brought about by political stability and by a positive attitude within government and major opposition parties toward private sector development. Grenadians themselves have been the most enthusiastic investors in their country's economy, frequently bringing home lifetime savings earned abroad. The country has also benefited from stronger commodity export prices, particularly in agricultural products such as nutmeg and mace, whose prices increased dramatically a couple of years ago and have remained high.

Agriculture continued to be the mainstay of Grenada's economy in 1988. Although it accounted for about 20 percent of GDP, its importance relative to other sectors has slightly diminished from previous years, reflecting a trend that is likely to continue.

Manufacturing in Grenada achieved a real growth of over 10 percent in 1988, increasing its overall importance as a percentage of GDP.

After years of near negligible price increases, inflation crept upward in 1988-89. Unemployment levels also remain high, and a new labor survey has revised upward previous estimates of joblessness. Grenada continues to import a lot more merchandise than it exports, but tourist receipts and capital repatriation help offset what otherwise would be a foreign exchange drain. Improvement occurred in the government's fiscal position in 1988.

The large U.S. merchandise trade surplus with Grenada began to shrink somewhat in 1988 after years of growth. During the year, U.S. exports to Grenada decreased somewhat while imports from Grenada increased. The U.S. share of Grenada's total imports also declined somewhat, while its share of Grenada's total exports doubled to 10 percent. Europe remains the traditional market for most of Grenada's tropical fruits and flowers, while the United States should continue to enlarge its share of Grenada's exports. The United States will probably maintain its share of Grenada's import market, which amounts to about a quarter of the total.

Improved air transport links with the United States and increasing U.S. investment in Grenada should benefit overall trade between the United States and Grenada. Major U.S. exports to Grenada include medical/pharmaceutical supplies, frozen meats (particularly chicken), plywood, wheat, and other foodstuffs.

The expected increase in tourism should provide opportunities for a variety of tourism-related products and facilities, including restaurant, hotel, and sports equipment. Grenada's growth as a yachting center ought also to stimulate demand for marine supplies and maintenance equipment on the island. One major marina investment has already been made in 1989, and more investment is expected, which should help restore this windward island country, below the hurricane belt, to prominence as a center for yachting in the southeast Caribbean.

The potential for increasing the market for swimming pools, pool supplies, cistern, and related services remains strong. The same goes for solar panels, which could benefit from the continuing residential construction boom and from reltively high electricity rates. The overwhelming majority of homes, including expesive ones, are without air-conditioning. With the proper marketing strategy, a significant increase in demand for cooling units could probably be developed.

There were 12,198 vehicles (mostly Japanese) registered in Grenada in 1988, 8.4 percent more than in the previous year. The steady growth in the automobile market in recent years continues to present an opportunity for suppliers of auto parts and accessories.

Opportunities for U.S. suppliers of pipes, pumps, fences, prefabricated buildings, and building materials should stem from planned construction of a long-delayed sewage disposal project south of the capital.

Grenada became the first country in the world in 1989 to ratify one of the bilaterial investment treaties (BIT) which the United States began negotiating in the mid-1980s. The BIT essentially gives national treatment to U.S. investors in Grenada, and vice versa, except for the use of land and natural resources and a few other deviations. The climate for U.S. and foreign investors has been further enhanced through tax concessions and other investment incentives. Over the past several years, the government has tried to stimulate private sector growth by reducing market restrictions and eliminating income tax and a number of minor "nuisance" taxes.

A series of amendments of the business and value-added taxes aimed at recuperating lost revenues has led to some charges from within the business community of government backtracing on the original goals. By and large, however, businesses have been profiting handsomely since the fiscal reforms began. Four major U.S. pharmaceutical companies set up light assembly operations in Grenada over the past several years, and a few other U.S. manufacturing operations have either started recently or are about to start.

A bilateral Tax Information Exchange Agreement (TIEA) concluded in 1987 will allow U.S. tax exempt "936 funds" invested in the Puerto Rican banking system by U.S. companies to be available at below prime interest rates for future investments in Grenada. The TIEA will also permit certain business expenses incurred by U.S. business representatives attending conventions in Grenada to be deducted from taxes under Sections 161 and 212 of the Internal Revenue Service Code, which should further the development of the tourist industry.

Grenada also had duty-free access for a vast number of products to the European and U.S. markets under the Lome Convention and Caribbean Basin Initiative, respectively. There is presently no quota for Grenada's textile products. Local producers are now finding it profitable to use fabric made and cut in the United States (and thereby only pay duty on local value added under Section 807 of the Customs Act). If quotas appeared likely, therefore, grenada could take advantage of the CBI's "Guaranteed Access Level," a program which would permit it to export virtually as much of these 807 textile products as it could produce.

The Industrial Development Corporation (IDC), established in 1985, provides advice and assistance to investors and makes recommendations to the cabinet for the granting of concessions involving a waiver of taxes and other legal requirements. The IDC recently relocated to the new Frequente Industrial Park, an 18-factory shell complex located near the new international airport, which itself is only about a ten-minute drive from the port. The building of another new industrial park near the old Pearl's airport on the other side of the island is scheduled to start in early 1990.

For a country its size, Grenada has a first-class airport, which unfortunately has been badly underutilized since its completion in 1984. the inauguaration of the first regular service by a U.S. carrier (American Airlines) in late 1989 or early 1990 will be a needed boost for more than just the airport. The limited existing connections to the United States via regionally-based airlines have hitherto caused serious bottlenecks in the interchange of passengers and freight. As a result of American's recent decision to open direct service to Grenada, interest in new hotel development and manufacturing has already increased markedly. The interest has been enhanced by the massive infrastructure improvements of the past several years and by Grenada's reputation as one of the most beautiful and unspoiled islands in the Caribbean. The strong growth in tourism which should ensue will offer a multitude of opportunities to entreprenurs in agriculture, manufacturing, and miscellaneous services willing to tailor their investments to satisfying the needs of tourism.

For more information, contact the Commerce Department Desk Officer on (202) 377-2527.

COPYRIGHT 1989 U.S. Government Printing Office

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