The economy of St. Maarten has begun to show signs of recovery. All major economic indicators referred herein this Annual Economic Report of 2003 have shown mostly all positive developments. To strengthen the foregoing as well, some of the indicators have shown double digit increases, illustrating the rebounding of the economy.

When looking at our comprehensive economic indicator of Turn-over-Tax (TOT), we observe a moderate increase, even after we factor out an assumed inflation of approximately 1-2%. It should be noted that TOT is not an economic measure such as the GDP however it is the most relatively close approximation measure of economic activity. When analyzing the figures we see an increase in 2003, compared to both 2002 and 2001. This pattern was evident when we looked at both the yearly totals and the quarterly figures of TOT where we observed a consistent pattern of increases, thus suggesting strong signs of economic recovery.

Considering that the economy of St. Maarten is significantly dependant upon tourism, the findings of the TOT are consistent with developments in our mainstay namely, tourism. When we look at Stay-over tourism, we see that St. Maarten experienced an overall double-digit increase. More specifically, in our main tourist market of the United States of America (USA) which accounted for almost 60% of tourist arrivals, we even observed a higher percentage increase than the overall total percentage increase.

A closer analysis of developments in the stay-over market, we see the US , Caribbean, and “Rest of the World” markets showing all double-digit increases, while the European market was flat and the South American market continues to contract, however at a decreasing rate. The trend of the South American market has seemingly begun to “bottom-out” and the European market trend continues to slip. These developments have been off-set by consistent increases in every quarter of 2003, compared to 2002, in the Caribbean, US, and “Rest of the World” markets.

The pattern was consistent when we looked at the cruise tourism arrivals, which was just under the double-digit range. This is certainly lower of an increase relative to the recent trends observed in cruise tourism however, this must be seen within its proper context namely, that the cruise tourism has now surpassed the million passenger mark. This suggests that cruise tourism is approaching its capacity. However, while the percentage change has diminished slightly, the absolute number of cruise tourist arrivals is by far a great achievement.

When we look at developments in government revenue, we observed there was a moderate contraction of income primarily caused by decreases in the “Other revenues” and profit tax. However developments in the labor market, seem to have mixed developments as wage tax increased moderately, while AVBZ has decreased slightly. The tourism related income of room tax has shown a similar pattern with the developments in the stay-over tourism, both having shown increases, despite decreases in Timeshare and Rental tax.
When looking at developments in the Banking sector we also observe moderate growth in both the residential loans and deposits. All categories of residential deposits have shown increases, with the exception of Time deposits, while in the residential loans, all segments have illustrated increases with the exception of Mortgages, which had a slight contraction. It should be noted that the percentage increase of the loan category is still relatively low, compared to recent historical data/trends. This seems to suggest that the current level of interest rates will continue in the short-term especially for long-term lending.

Utility developments have solidified our findings as well as the patterns reflect the same moderate increases as with most of our major economic indicators. When we look at developments of water and electricity production in 2003, compared to 2002, we see an increase in both segments. This pattern was consistent for both water and electricity and across all segments, which are Domestic, Commercial and Large Consumer, with the only exception being a decrease in large consumer of electricity.

The issuance of business license in 2003 has increased significantly relative to 2002. Similarly, the number of licenses withdrawn has also increased during the same period. It should be noted that this indicator is merely a sort of recording indicator, as opposed to a measuring indicator. The reason for said classification is due to the varied reasons and justifications for starting a business are not only based purely on economic reasoning.

The number of building permits is also a source of ascertaining developments of the economy as it gives an impression of the level of confidence individuals and businesses have in the economy. There is a distinction made between building permits requested and those issued. Considering that building permits issued is significantly influenced by the productivity of a department and/or technical mistakes of drawings, we utilized the former (i.e. building permits requested) as a means to ascertain economic confidence for the long-term. The analysis shows that there is significant confidence to build as both building permits requested and issued has observed consistent increases in every quarter of 2003, compared to 2002, which has invariably resulted in a yearly total increase as well.

Conclusion

When we look at the economic indicators they seem to suggest that the economy is growing. All the major indicators have demonstrated increases in 2003, relative to 2002, with the only being government revenue. To add to the foregoing, the trend developments are also consistent with this pattern as well. It should be noted that this is only applicable to the general or overall totals and not to the sub sectors. The sub sectors experienced mixed results whereby some sub sectors have experienced increases while others have observed decreases. However, for the most part the indicators have mostly demonstrated increases, solidifying that the economy is rebounding.

Considering that the economy of St. Maarten is significantly dependent upon the tourism industry and primarily from the North American market, the stagnancy of the US economy is the main driving force of the local economy. It should be noted that the performance of the economic indicators does not automatically translate into additional economic activity and tourism spending must also accompany the increased volume of passengers. Subsequently, we can draw more concrete conclusions regarding the trickle-over effects from the tourism industry into the local economy.

As already mentioned, the performance of the economic indicators depends significantly on the performance of the economy of the respective countries. Observers have indicated that 2003 was a year where US company profits have increased, however this increase did not flow over into the labor market. This suggests that companies are taking a more cautious approach towards hiring and as they feel more comfortable with their performance, they will subsequently hire more employees. Consequently, 2004 is expected to be the year of good expectations in the labor market, which should trickle over into a decrease in unemployment. If the latter is the case, this will enhance the economic performance in sustainable manner for both the US economy as well as subsequently, the economy of St. Maarten.

A closer analysis of the tourism sub sectors, we observed a significant decrease in the South American market and tremendous resilience in the Caribbean market, which seem to suggest that government may want to reconsider their target marketing of the former market and place more emphasis and resources in to the latter (i.e. Caribbean) market. In particular, when we consider from previous surveys that Caribbean market has a high spending average, there seems to be a potential market that we can further explored. Obviously, the purpose of the Caribbean visitors that comes to St. Maarten for shopping purposes is different than a regular tourist however the Caribbean market is significantly large enough to pursue shopping visitors (for both commercial and retail shopping purposes).

Regarding government revenue, the expectation of 2004 is that government revenue will certainly increase as government has commenced various exercises to increase its income and minimize the liquidity challenges. These efforts are seemingly on targets (individuals and entities) which have not been contributing their fair share, thus not pursuing businesses and/or individuals who have already been contributing.
Continued expansion of infrastructural projects and major ports such as the airport will also facilitate the expected increase of economic activity. Completion of existing projects such as the newly opened Hotel/Timeshare resorts will add to the employment opportunities and expand the current level of room inventory which is imperative for additional airlift and lower air fares. The foregoing are the imperative ingredients for additional tourists arrivals which the accompanying economic spin-offs for the local economy.

Barring obvious external factors such as hurricanes and man-made disasters, St. Maarten is poised for continued economic expansion in 2004, compared to 2003. Indicators such as cruise tourism will continue to increase however at a decreasing rate as the current level of cruise tourism has approached its capacity. This factor does not mean nor suggest that the industry is not performing well, as there should now be a specific focus by government to transform the current level of over 1 million cruise passengers into stay-over tourism. A transfer target rate of 10-20% would significantly add approximately 50% to the stay-over arrivals; obviously these efforts should be preceded by efforts to increase the hotel room inventory. In the interim, the conversion program should be focused in the off-season, where the occupancy rate is relatively low.

In the final analysis, economic performance is on the increase and the complete rebound of the US economy is expected in 2004. As a consequence of the weak performance of the US economy, the Euro became relatively strong which surprisingly resulted in weak showing of the European market. As a result of the strength of the Euro, this could cause more tourists spending on the Dutch side since the purchasing power of the dollar will be lower on the French side. To mitigate these effects, businesses on the French side have been taking the lesser loss by accepting the Euro one-to-one ratio to the US dollar. The end result is that competition for the tourist expenditure is strong which also keeps relatively low to acquire a competitive advantage, which St. Maarten should try to maintain with priceless concepts such as service to build customer loyalty. By means of these strategies St. Maarten will be able to extract the required consumer spending which serves as a catalyst for economic spin-offs into the local economy.