The economy of St. Maarten can be considered to have performed relatively weak in 2002, compared to 2001. This revelation is rather surprising as we expected more growth and higher increases of the various economic indicators mainly as a direct result of the strong performance we observed in the third quarter of 2002, relative to 2001. The primary reason, for the unexpected weak performance is evident when we analyze the figures from an annual perspective. However, the analysis on a quarterly basis gives us reason for hope. When analyzing the indicators on a quarterly basis, the figures indicate recovery from the tragic events of September 11, 2001 for all the major indicators. However, the 9-11tragic events had a delayed effect in the fourth quarter of 2001 and continued well into the first quarter of 2002. This delayed effect impacted the 2002 tourist season and the rebound in the latter part of 2002 was not enough to offset the decrease in the first half of the year.

This pattern was also observed in our most comprehensive indicator namely, the Turnover tax (TOT). The TOT only accumulated an increase in 2002, compared to 2001. When we factor out recent inflation figure patterns for the last three years (i.e. 1999-2001), then we can only assume that the economy has increased slightly. The exact indication is not known, as the inflation rate for 2002 was not available at the time of compilation of this report. Nevertheless, when we analyze TOT on a quarterly basis, we do observe recovery in all quarters of 2002, compared to 2001. This is the primary reason that we consider the performance of the economy to relatively moderate.

A possible explanation for the moderate performance could be the performance of the US economy, which has been considered to be relatively weak, and consumer confidence is still relatively low and it has not rebounded fully. As we are aware, the economy of St. Maarten is primarily dependent upon tourism especially from the US market. In 2002, the performance of the US economy was very weak and this resulted in the local economy also performing relatively sluggish. Consequently, we observed a moderate performance of the economy.

Considering that the economy mainly depends on tourism, it is critical to ascertain how the various sectors of the tourism industry performed. When we look at stay-over tourism, we see similar patterns as described above where the overall performance was not as great as a direct result of the delayed effect of 9-11. The impact of 9-11 spilled over into the first half of 2002 and the performance of the second half of 2002 was not strong enough to offset the decrease of the first half.

However, analyzing stay-over tourism on a quarterly basis does reflect a continued recovery pattern. Unfortunately, the recovery (in the latter part of the year) was not big enough to offset the yearly total (i.e. 2002). This pattern is also consistent when we look at the five major markets, which all showed the same recovery on a quarterly basis, despite decreases on a yearly basis.

Developments in the stay-over tourism can also be verified by looking at the occupancy rate (OR) of the hotels. These figures have been made available from the St. Maarten Hospitality & Trade Association (SHTA) based on their members. It should be noted that these figures do not reflect profitability of the hotel, as we do not know the average daily rate (ADR) of these resorts. Our primary analysis concentrates mainly on the level of occupancy. Given the above-mentioned, we observed an increase in the occupancy rate in 2002, compared to 2001. Despite the delayed effects of 9-11, OR showed an increase in every quarter of 2002, relative to 2001. It should be noted that this analysis does not take into account the December OR, as it was not available at the time of publication. The explanation to the positive performance of stay-over tourism particularly, in the fourth quarter, demonstrates the effectiveness and importance of marketing and maintaining presence in the market.

An additional source of optimism of the tourism industry lies primarily with Cruise tourism since this market only experienced a small decrease in the first quarter. However, the remaining quarters all showed high double-digit increases in 2002 from a quarterly perspective, relative to 2001. Contrary to the stay-over tourism, the total yearly performance of Cruise tourism showed strong positive growth in 2002, compared to 2001. The main reason could be attributed to a good off-season as re-deployment of cruise ships from the Mediterranean region after Sept. 11, 2001. Subsequently, this industry is certainly paying off its dividends to the harbor and the island in general. In 2002, St. Maarten acquired a historical achievement by attaining its one-millionth passenger in the same year in December 2002.

A new tourism sector that the Department has been able to acquire information is the Marine industry, where the number of vessels and the passengers entering St. Maarten via the Simpson Bay bridge. The number of in-vessels has seen a moderate decrease in 2002, relative to 2001. The various markets of origin of the passengers have all shown a decrease in the total for 2002, compared to 2001, however, there was a significant increase in the fourth quarter of 2002, compared to 2001. Naturally, the widening of the channel into the Simpson Bay Lagoon played an important role in this development along with the Isle de Sol Marina project on the formerly known “Snoopy Island.”

When looking at the government revenue figures, we observe a mixed set of results. The overall total of government revenue, reflect a marginal decrease in 2002, compared to 2001. The delayed impact of 9-11 was evident with a decrease in government revenue in the first two quarters and a rebounding in the third quarter. The latter could be considered an artificial increase as the tragic event of Sept. 11th, 2001 impacted that year, which will result in the following year (i.e. 2002) showing an increase. Despite the increase in the 3rd, quarter of 2002, the fourth quarter experience a decrease, compared to 2001.

Further analysis of government revenue reflect marginal performance in traditionally strong sectors such as Timeshare tax, which observed a marginal increase of the total annual revenue in 2002, compared to 2001. When looking at the room tax, we see a large decrease, however, this was primarily related to the temporary reduction of the room tax as a direct result of the Relief Measures based on the proposal of the Relief Taskforce.

The mixed results were evident by strong increases in vehicle tax and “other” categories, whereas, critical direct taxes such as wage - and profit tax have seen decreases to their yearly totals. In the latter two taxes, no real recovery pattern was detectable as all showed decreases to varying degrees, with the only exception in the third quarter of 2002 for profit tax. Naturally, this is also an inflated increase as the 3rd, quarter 2001, suffered from 9-11. Whereas, vehicle tax and the “other” categories showed mostly increases and recovery patterns, especially when government offers “incentive payment arrangements.” These “incentive payment arrangements” could be considered discount for individuals who pay early rather than later. This method has shown to be quite effective and healthy for government’s liquidity challenges.

Consistent with this pattern was the developments of Federal Government revenue such as AOV/AWW, which we utilized as a means to measure and monitor developments in the labor market. AOV/AW has shown a slide in its yearly total with mixed performance during 2002, compared to 2001. The first and third quarter have shown moderate increases, however, the second and fourth quarters have observed decreases in 2002, relative to 2001. AVBZ showed positive developments with only a minor decrease in the 2nd, quarter of 2002, compared to 2001, and the remaining quarters showing a recovery pattern with a yearly increase total.

Developments in the banking sector also reflect the pulse of the domestic economy by measuring consumer confidence in the economy. Based on the figures available at the publication of the report which is up to the 3rd quarter of 2002, we continue to see a relative moderate performance as loans continue to increase but not by the double-digit numbers as previous years. Subsequently, this is relatively significant as there is liquidity in the market, which usually results in a reduction of interest rates, easier access to cash (i.e. loans) as well as intensification of marketing strategies by the financial institutions. The level of deposits has remained relatively consistent with increases in 2002, compared to 2001, indicative of the uncertainty and low consumer confidence.

The Department of Economic Policy & Research has also embarked on the acquiring of other economic indicators to reflect confidence that consumers have in the economy, especially in the long term. To this end, we utilize figures from the Department of VROM to look at the number of building permits requested and issued. The former reflects more the demand for building and subsequently, the figures reveal the confidence individuals/businesses have in the economy in the mid to long term. Unfortunately, data was only available for 2002 and we do not have any historical data for comparison purposes. However, when we look at the number of building issued we see the same relatively flat pattern, thereby indicating a conservative approach towards the future.

When looking at developments of the issuance and withdrawals of business license we also mixed findings as the number of business license issued in 2002 is higher than 2001. However, the number of business license withdrawals in 2002 is also higher than in 2001. In future reports, we have agreed to also measure the number of business licenses requested in addition to issued, primarily to measure the demand to start businesses in St. Maarten, which will serve as an economic indicator in terms of confidence individuals have in the economy of St. Maarten.

The performance of the economy by monitoring developments of the utility company, G.E.B.E., is also critical to our analysis. To this end, we observe a marginal increase in water production in 2002, compared to 2001. However, electricity production during the same period has a higher increase, mainly driven by a huge increase of large consumers. With respect to quarterly developments of electricity and water, the same recovery pattern (i.e. every quarter performing better than the previous) was evident in 2002, compared to 2001.

This annual report has included general information on a few new sections such as population, health, education, and the labor force. This information has been compiled mainly from other published sources such as CBS and there are some interesting findings that have been brought forward.

When looking at the performance of the cargo industry, we also see an increase in container movements, both outbound and inbound. However, performance of non-container cargo has shown contractions (e.g. fish, boats, gravel, steel, etc.).

In conclusion, the economy has performed moderately. The primary reason for the overall performance was mainly driven by the delayed effects of 9-11, which spilled over into the 1st and even 2nd quarter of 2002, compared to 2001. However, it should be noted that a consistent quarterly recovery pattern was evident during the year.

As a result of the economy depending heavily on the tourism industry, the performance of the US economy directly impacts the local economy. Subsequently, the continued weak performance of the US economy despite, numerous interest rate cuts, low consumer confidence primarily driven by the concern/threat of war with Iraq have all trickled down into a moderate performance of the economy in 2002, compared to 2001. The performance in the fourth quarter was a surprise in particular since the consistent quarterly recovery pattern was evident during 2002. In addition, a continued rebound in the fourth quarter was necessary to offset the delayed effects of the first half of the year and this rebound never occur which resulted in the overall moderate performance of the economy in 2002.

In the final analysis, given the quarterly recovery pattern in 2002 and the speedy resolution of the war with Iraq, the expectation is that the US economy will pick up very fast and subsequently, will the economy of St. Maarten. In addition, the performance of the tourism industry and the various opportunities within the tourism industry (i.e. widening of Simpson Bay channel, Isle de Sol, continuation of the Airport Expansion plans, and the historical achievement of the One-Millionth cruise passenger in the same year) we consider our perspective to be cautiously optimistic.