Saint Lucia Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

Saint Lucia’s economy has fundamentally changed over the past three decades. The country’s old main industry, banana cultivation, has lost its dominant position. Tourism is now the most important economic sector.

At the same time, the entire service sector, which includes tourism, has grown significantly and now contributes to more than four fifths of the country’s gross domestic product (GDP). Tourism is estimated to account for almost half of GDP and employ half the labor force. At the same time, agriculture’s share of GDP has dropped drastically – from 15 percent in 1990 to less than 3 percent in 2016. In the same year, banana production accounted for a modest 0.6 percent of GDP.

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The banana industry has been facing major problems since the early 1990s. Harvests have been repeatedly destroyed by hurricanes, while competition in the international market has increased as the EU has been forced to bow to demands from Latin American banana growers and liquidate the benefits that the Union previously gave banana growers in the Caribbean. In 2016, banana exports to other Caribbean countries for the first time generated higher revenues than the sale of bananas to the traditional British market.

The economy is widening

To boost production, the banana industry and the government have primarily supported the growers who have the greatest chance of succeeding. This applies primarily to those whose crops are not overly impenetrable and who have access to irrigation. Growers have also been encouraged to focus on organic and fair-labeled production, and to try new crops such as avocados. Coconuts, mangoes, cocoa and citrus fruits are also important agricultural products. However, the problems in the banana industry have persisted.

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In order to reduce the dependence on banana exports and tourism, the government has invested in lighter industries and compound factories. Special free zones with low taxes and duties have been formed to attract companies to Saint Lucia. The zones produce food, electronic components, textiles, beer, rum and cartons, among other things.

The decline of the banana industry combined with increased competition from other tourist countries and high production costs as a result of a high wage situation meant that economic growth during the 1990s was low. During the first eight years of the 2000s, the economy improved, mainly due to tourism once again accelerating. But the positive trend did not spread to other parts of the economy and from 2009, when the effects of the global financial crisis became evident with falling tourism incomes, growth has been low or negative.

Tourism and finance

Until the 2010s, the necessary investments in the tourism industry were mainly financed with large loans abroad. Government debt and the budget deficit grew rapidly. In order to increase revenue to the Treasury and reduce the central government debt, a VAT of 15 percent was introduced in 2012 (in 2017 it was reduced to 12.5 percent). During much of the 2010s, the government froze or lowered the salaries of civil servants.

However, when the central government debt remained high, the SLP government launched in early 2016 a program that allows foreigners to buy citizenship in Saint Lucia in exchange for extensive investments. However, the program received criticism, among other things from the US, as the passport sale risks making it easier for criminals from abroad to launder black money in Saint Lucia’s financial system. Despite the criticism, the “citizenship against investment” program was expanded a year later, when it was shown to generate good profits. In 2016, however, the central government debt share of GDP was still high, just over 83 percent.

After the necessary legislation was introduced, several hundred international companies established themselves on the island in the early 2000s to conduct so-called offshore operations. As a result, Saint Lucia eventually ended up in the OECD economic list of countries that do not do enough to prevent their financial sectors from being used for money laundering (to turn illegally earned money into legal assets). Saint Lucia has taken some measures to meet the world’s demands for better control of the financial sector, and in 2010 the OECD removed the country from the gray list. However, Saint Lucia continues to receive criticism from the United States for not fighting money laundering enough.