Dickson Igwe. Photo: VINO/File

The [British] Virgin Islands is an economic dichotomy. There are two economies that merge into one: a paradox indeed, but very real nonetheless. It is unclear where one economy ends and the other begins. One part of the divide is the export economy. The export economy drives the overall economy. It accounts for over 80% of the country’s Gross Domestic Product. It consists of service exports: financial services and tourism services. It is the biggest employer.

It is clear that the VI economy is an export oriented economy. That definition is based on the fact that the country’s Gross Domestic Product, the country’s output of goods and services, is focused on producing tourism and financial services for the global market, especially the USA and UK.

The other half of the divide is the country’s domestic economy. This is made up of local businesses: such as construction, retail, and media. Add the organs of the public sector such as Water and Sewerage, BVI Electricity, public education, and so on and so forth.

And clearly the dividing line is not a linear cut: it is changing and deviating. There is a great deal of overlap between the two economies. But the two economies differ, especially in theory. One is oriented to the external or global marketplace; the other to the internal local consumer.

Now, Singapore is one of the world’s most dynamic economies. Singapore is also used as a benchmark for tiny service based jurisdictions such as these Virgin Islands. Interestingly, Singapore has recently been hit by an economic slowdown that is simply the result of a new global environment of slow growth brought about by the 2007-2009 Great Recession and the aftermath.

Singapore’s present economic position highlights the economic dichotomy model of an export oriented economy with a local or domestic economy that is heavily impacted by activity in the export sector.

First, wage growth in Singapore’s export sector has slowed owing to weak growth in the sector. The new normal of slow global economic growth has hit all net exporting nations. China too is slowing and this is cause for concern. China has become a bellwether for the global economy, just as much as the USA is.

In Singapore’s domestic sector, in areas such as construction, retail, food services and so on, wages in the sector are traditionally lower than in the export sector.

Since 2010, the size of the workforce involved in exports such as manufacturing for overseas markets, transportation and storage, has shrunk. This has impacted Singapore’s economic growth negatively. Why: because wage growth in most economies increases consumer demand. However, domestic wage growth is especially central to economic growth. Higher wage growth also pushes up local productivity. Hence the main argument for a minimum wage is not simply based on equity but it is based upon good economics.

The Singapore Model shows that both markets: export and local are critical for economic growth: hence the diversification argument. A strong local market can insulate an economy from the vagaries of the wider global environment. 

Now apart from wage led growth that impacts consumer demand, which is essentially a Demand Side Economic idea, the other two types of growth are either debt driven or export driven. Growth driven by capital or corporations is the opposite Supply Side economy. Economists have argued that debt driven corporate growth has led to wealth inequality, and higher unemployment and wage depression. 

When a country’s export economy is booming, but its internal domestic economy stagnates then there is a problem. The country is dependent on external forces beyond its control. Economic recession in its export market will impact its export industry and this will mean economic slowdown, even recession.

However, where a country possesses a strong and diversified local economy, when exports slow the local economy still generates business and job growth. The internal market takes up the slack when the export market slows.

Depending overwhelmingly on an export industry for economic growth is tantamount to putting all of one’s eggs into a single basket. It is unwise.

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