Fostering Sustainable and Inclusive Growth in Suriname1
This chapter offers a summary of key issues and recommendations regarding the business environment, structural competitiveness, poverty and inequality.
1. Overall, although a supportive economic environment has buoyed Suriname’s income per capita, strengthening the business climate and competitiveness are priorities for supporting diversified and inclusive growth over the medium-term. In particular, enhancing the competitiveness of the non-extractive sector would help diversify the sources of growth and promote job creation. High prices of Suriname’s export commodities in recent years and public investment have supported growth in income per capita but dependence on the extractive sector for growth increases exposure to a volatile commodity cycle, while limiting scope for employment growth. Hence, critical issues ahead are how to modernize the legal framework for doing business and increase competition and flexibility in product and labor markets to support diversified private sector-led growth.
B. Strengthening the Business Environment
Reducing the cost of doing business and continuing to modernize the legal framework would help strengthen the business environment.
2. Some positive changes in the business environment have already occurred. In 2013, Suriname moved up by 3 places in the World Bank Doing Business ranking and is currently ranked 161 out of 189 countries thanks to progress in streamlining the process for registering a new company and simplifying the procedure to transfer property. The country is rated in line with regional peers in several areas including dealing with construction permits, getting electricity, paying taxes, and macroeconomic stability (Table 1).
|Ease of doing business||161||115||90||95|
|Starting a Business||181||123||93||95|
|Dealing with Construction Permits||49||82||111||95|
|Trading Across Borders||105||90||94||95|
|Global competitiveness Index||106||92||73||75|
|1st pillar: Institutions||99||99||81||75|
|Intellectual property protection||118||91||83||75|
|Burden of government regulation||99||84||90||75|
|2nd pillar: Infrastructure||91||81||77||75|
|Quality of air transport infrastructure||104||81||78||75|
|Quality of roads||71||88||77||75|
|Quality of railroads||108||73||59||61|
|Electricity and telephony infrastructure||80||89||78||75|
|3rd pillar: Macroeconomic environment||66||75||67||75|
|4th pillar: Health and primary education||78||86||73||75|
|5th pillar: Higher education and training||98||80||73||75|
|6th pillar: Goods market efficiency||128||99||84||75|
|7th pillar: Labor market efficiency||102||102||87||75|
|Hiring and firing practices||138||96||84||75|
|Capacity to retain talent||101||63||74||75|
|Women in labor force, ratio to men||117||104||98||75|
|8th pillar: Financial market development||111||86||79||75|
|Availability of financial services||111||73||78||75|
|Ease of access to loans||111||71||63||75|
|9th pillar: Technological readiness||101||84||76||75|
|10th pillar: Market size||140||84||65||75|
|Innovation and sophistication factors||120||75||86||75|
|11th pillar: Business sophistication||118||71||76||75|
|12th pillar: Innovation||125||83||83||75|
3. Efforts currently underway focus on modernizing the legal framework for doing business. Suriname still lags behind many of its peers in a number of areas, including starting a business, registering property, getting credit, protecting investors, and enforcing contracts (Figure 1). The 2013–14 Global Competitiveness Report identified lengthy procedures and low access to financing as key constraints on the business climate. The Competitiveness Unit of the Office of the Vice President is leading the modernization of the legal framework for doing business. The Council of Ministers has recently approved draft laws on competition policy, limited liability companies, and electronic publication of the registration of new firms. The new legislation aims to strengthen the business environment, particularly for small and medium-sized enterprises by reducing the cost of starting a business. The pipeline of new legislation encompasses 16 draft laws in areas ranging from protection of intellectual property to access to finance for small and medium-sized enterprises.
Figure 1.Suriname: Business Climate and Competitiveness Rankings
Source: World Bank; World Economic Forum.
C. Structural Competitiveness
Now that Suriname has transitioned into an efficiency-driven economy, it should focus on increasing competitiveness in priority areas: higher education, product markets, and financial market development.
4. Suriname has transitioned from a factor-driven economy into an efficiency-driven economy. Rising commodity prices and an expanding extractive sector have buoyed income per capita, which increased at an average rate of about 6 percent over the last decade, faster than the average of Latin America and the Caribbean. As a result, Suriname is currently classified as an efficiency-driven economy by the World Economic Forum. Further, the 2013–14 Global Competitiveness Report ranked Suriname 106 out of 148 countries. In particular, its ratings were in line with regional peers in most basic competitiveness indicators, including macroeconomic environment (66), quality of health and primary education (78), and infrastructure (81) but below the average in institutional quality (99).
5. But growth at the efficiency stage is determined not so much by factor endowments but by product quality and the efficiency of production. Efficiency-driven economies have higher wages but cannot raise prices. Hence, their competitiveness hinges upon the ability to improve efficiency, which in turn is related to higher education and training, efficiency of goods and labor markets, financial market development, ability to benefit from existing technologies, and market size. By contrast, factor-driven economies compete on prices based on their endowments of unskilled labor and natural resources. Therefore, for these countries competitiveness in quality of institutions and infrastructure, macroeconomic stability, and access to basic health and education are more important.
6. Future efforts should therefore aim to enhance efficiency in priority areas. Suriname is rated below many of its peers in higher education and training, goods market efficiency, and financial market development. Higher education and training could be strengthened in key areas to respond to the increased demand for business and engineering professionals. Competition in product markets could be further enhanced by strengthening anti-monopoly policy and streamlining the procedures for starting a business. Finally, improved access to loans and venture capital could create a more enabling environment for small and medium-sized enterprises.
Increasing the efficiency and flexibility of product and labor markets could lead to improvements in productivity and reduce long-term unemployment.
7. A generally supportive economic environment led to some reduction in unemployment, which was however concentrated in particular sectors. Buoyant commodity prices and increased public investment helped reduce unemployment to about 7 percent in 2012 from 12.3 percent in 2006 in the capital and adjacent areas (based on General Bureau of Statistics data for the capital Paramaribo and Wanica). However, job creation was concentrated in particular sectors such as mining and construction, and unemployment will be higher if we consider long-term unemployed (discouraged workers) who are not officially in the labor force. Adding discouraged workers will increase unemployment to 10.2 percent. The share of discouraged workers has been relatively stable at about 4 percent of the labor force in Paramaribo and Wanica in 2012, down by 1.5 percentage points from 2005. Data compiled by the General Statistical Office of Suriname show that the unemployment rate nationwide was 10.3 percent at end-2012.2
Unemployment in Latin America and the Caribbean, 2012
Sources: Suriname General Bureau of Statistics; and the World Economic Outlook.
8. For sustainable and inclusive growth, enhancements are needed in productivity and competitiveness of non-extractive sectors. On the one hand, part of the problem of fostering inclusive growth in Suriname may come from high dependence for growth on the extractive sector. The formal extractive sector is capital intensive and with moderate impact on job creation. However, the increase in the price of gold in recent years may have contributed to higher informal employment in the gold-mining sector and lower official labor force participation. Nonetheless, uncertain prices of Suriname’s export commodities weigh on the employment outlook in the extractive sector. Labor-intensive sectors such as services, agriculture, and construction together with government account for the bulk of employment. However, growth has slowed in the agriculture sector, which is confronted with increased competition from other Latin American countries, and there are limits to increasing government employment. The productivity and competitiveness of the non-extractive sector could be enhanced by reducing barriers to entry, encouraging competition, and increasing market size. In this context, the sale of the state-owned banana company in 2014 to a strategic foreign investor could lead to economies of scale and broaden its market access.
9. Greater labor market flexibility could facilitate firms’ adjustment to shocks and help reduce long-term unemployment. One area for reform is reducing employment protection, while at the same time introducing some unemployment insurance to reduce welfare costs. Strict labor laws constrain firms’ ability to adjust costs to cyclical fluctuations. High employment protection reduces the probability of new hiring and can increase the duration of unemployment, particularly among youth and long-term unemployed. Reducing employment protection would also require introducing some unemployment insurance, which could decline with unemployment duration. Labor market reforms should be also complemented by active labor market policies that provide training and skill matching to help unemployed return to work.
10. New legislation aims to reduce the wedge between employment benefits in the public and private sectors. Until recently, limited health and pension benefits in the private sector encouraged workers to seek employment in the public sector, which accounts for more than 40 percent of total employment. However, new legislation being implemented in 2014 extends health and pension benefits nationwide. This will enhance the attractiveness of private sector jobs, help reduce informal sector activities, and may help encourage female labor force participation and reduce the higher female unemployment rate.
E. Poverty and Inequality
Data on poverty and inequality are scarce but offer indications that Suriname is near the regional average.
11. The analysis of trends in poverty and inequality is constrained by data limitations. Conventional income-based poverty and inequality indicators are fairly outdated. A recent household survey of the General Bureau of Statistics did not produce new estimates due to low response rates. Although robust growth in income per capita over the last decade may have reduced absolute poverty, its impact on inequality is more uncertain. The 2013 United Nations inequality-adjusted human development index estimated that the loss in human development due to inequality in 2006 was broadly in line with the regional average.
12. A broader snapshot suggests that poverty in Suriname is broadly in line with the regional average. The 2013 United Nations Human Development Report indicated that about 8 percent of the population lived in “multidimensional” poverty at end-2006, which is below the regional average of 13 percent (Figure 2). These results are based on a novel broader definition of poverty, which covers overlapping deprivations in living standards, health, and education. Using the same methodology, the report also found that about 3 percent of the population lived in severe poverty, which is somewhat less than the regional average of 5 percent. Social welfare programs of the Ministry of Social Affairs cover about 4 percent of the population, while a social housing program of the Ministry of Public Works aims to improve the affordability of housing for disadvantaged segments of the population. The authorities are also considering introducing a minimum wage, and staff has advised that it should be set at a level that does not compromise job creation among the low-skilled population.
Figure 2.Suriname: Poverty Indicators
Source: United Nations Development Program.
Inequality-adjusted Human Development Index (HDI)
13. In summary, improving the business climate and structural competitiveness would help support diversified and inclusive private sector-led growth. Efforts should continue to focus on priority areas, in particular modernizing the legal framework to create a more enabling environment for entrepreneurs, increasing efficiency, and fostering competition in product and labor markets. Further reforms in these areas are important for strengthening job creation in the private sector and reducing dependence on the extractive sector for employment and growth.
Prepared by Kalin Tintchev.
Including discouraged workers, the national unemployment rate increases to 12.8 percent.