Investing in a Sustainable Future

The importance of investment to growth has been often highlighted in economics literature. Nguyen and Trinh (2018) argue that investment from the private sector, state-owned enterprises and foreign direct investment have positive effects on short-term economic growth, while state-owned capital stock has positive impacts in both the short and long-run. Similarly, Ari and Koc (2020) identified feedback between public and private investment and Gross Domestic Product (GDP) in China and the United States.

In acknowledging this strong relationship, the growth strategy of the 2022 Barbados Economic Recovery and Transformation (BERT) programme calls for an acceleration of public and private sector investment in the transition to a green economy.

Investment in the post-independence period laid the foundation for much of the development in succeeding periods. While the public sector’s role in incentivising investment is readily recognised, traditionally the private sector has also played a dominant role. For example, physical investment in the lead up to the 2007 World Cup period was complemented by significant private investment in villas and the general housing stock.

Climate change has necessitated a renewed emphasis on climate resilient infrastructure, which is a key focus under the BERT II programme. Government intends to promote the acceleration of public and private sector investment in the green transition, especially in the energy generation, transport, tourism, housing and agricultural sectors through attractive but temporary feed-in-tariffs and tax reductions. The Roof-to-Reef (R2R) is a vanguard of the climate resilience agenda of the BERT II programme. The initiative includes the rehabilitation of the island’s water distribution network and waste water facilities and enhanced efforts to protect the coral reefs and marine environment. Research suggests that green investment is boosted by economic growth and sound financial systems (Eryaud, Clements and Wane, 2013). 

Building an affordable, green, and climate resilient housing stock is also a priority of BERT II’s green investment agenda. The Home Ownership Powered by Renewable Energy (HOPE) programme will use existing policy frameworks for renewable energy technology to make the cost of housing more affordable for Barbadians, while improving access to mortgages.

One key source of financing has been through the International Monetary Fund’s (IMF) Resilience and Sustainability Trust (RST) which aims to help low-income and vulnerable middle-income countries build resilience to external shocks and ensure sustainable growth. Government has acquired US $113 million to aid in the greening transition.

Green investments today will ensure that we continue to prosper and survive in the face of climate change. There is a need for investments to enable diversification, particularly in the fast-growing green and blue industries that promote sustainable growth, and foreign exchange earnings. The island will also need to utilise innovative financing and investment tools to propel its initiatives aimed at climate adaptation. These include debt-for-nature swaps, the IMF’s RST, thematic bonds (e.g. green and blue bonds) and community-based financing solutions.

References

Ari, I., & Koc, M. (2020). Economic Growth, Public and Private Investment: A Comparative Study of China and the United States. Sustainability, 12(6). doi:10.3390/su12062243

Eyraud, L., Clements, B., & Wane, A. (2013). Green investment: Trends and determinants. Energy Policy, 60, 859-865. doi:10.1016/j.enpol.2013.04.039

Nguyen, C. T., & Trinh, L. T. (2018). The Impacts of Public Investment on Private Investment and Economic Growth:Evidence from Vietnam. Journal of Asian Business and Economic Studies, 25(1), 15-32. doi:10.1108/JABES-04-2018-0003