the property profits and replaced
those profits with a commercial
rent. In some cases, this resulted in
turning some profitable enterprises
into loss-making entities.
2. The second challenge has been
the replacement of local landlords
by international owners. This has
resulted in rents increasing from
about 5% to 25% of sales to be
more in line with the expectation
of international funding agencies.
Caribbean companies have always
had a problem with salary costs
as a percentage of sales. The
international market expects rates
of between 8% to 12%. However,
rates of 10% to 20% have been
prevalent in the Caribbean. Given
the high levels of salary costs in the
Caribbean and the current increases
in rents, there is a movement by
many Caribbean companies towards
unprofitability.
Let me illustrate what I have been
saying by a graphical illustration
of two business models in the
Caribbean.
Option One shows the maximum
margin and the minimum expense
percentage.
Option Two shows the minimum
margin and maximum expense
percentage.
It should be noted that rents of 30%
and 40% are being experienced in
the international environment and
even on some cruise ships in our
region. You can see what this would
do to an already unprofitable model
based on Option Two which follows.
We have to guard against
widespread adoption of these rates
in our region.
To me, these trends are a major
threat to the existence of Caribbean
companies. There is a need for all
stakeholders to come together to
address this issue if the companies
in the Caribbean are to survive for
the next decade.
3. Another threat to businesses
in the Caribbean is the expansion
of international companies and
online shopping. Amazon is the best
example of an online international
company that is swallowing up
brick and mortar retailers all over
the world and the Caribbean is no
exception. This giant corporation
is a major threat with its large
buying power, vendors financing
inventory model and excellent
customer service. The region will
need to organise all of its business
experience to deal with this
problem.
4. Increasing regulations by
international organisations have
resulted in onerous procedures
and practices being enforced
on Caribbean entities by way of
legislation, the threat of being
blacklisted or of large fines if found to
be in violation of these regulations.
These include the following.
• Anti-money laundering legislation
which has been implemented in
most Caribbean organizations.
•Organization
for
Economic
Cooperation and Development
(OECD) rules which force some
Caribbean countries to significantly
reduce the corporation tax rate of
local companies to bring them in
line with foreign companies.
by European companies and
their subsidiaries abroad has also
affected the Caribbean. The threat
of massive fines for non-compliance
could bankrupt even the largest
companies and governments in the
Caribbean.
These changes in regulations
have made an unfriendly business
environment in the Caribbean even
more unfriendly.
It is anticipated that maintaining or
acquiring profitability will be a major
objective for international entities
operating within the Caribbean. It is
therefore important that the social
partners (Government, Trade Unions
and Private Sector) work closely
with each other to create a business
culture and environment that will
seek to return to profitability those
companies which are making losses
and to prevent profitable entities
from becoming unprofitable or
going under.
PREPARED BY
ALLAN C. HAYNES
Duty Free Caribbean (Holdings) Ltd.
REGIONAL
GROUP
FINANCIAL
CONTROLLER
CPA CG
• The enforcement of General Data
Protection Regulations (GDPR)
www.slyoumag.com | July-August 2019
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