Production Transformation Policy Review

1. A snapshot of Guadeloupe’s economy

Abstract

Guadeloupe, a French overseas territory and an EU Outermost Region nestled in the Caribbean, is in search of a renewed impetus for sustainable development. This chapter offers a concise overview of its economic evolution, showcasing recent progress and identifying key structural vulnerabilities. Addressing these challenges could unlock new prospects for enhanced internationalisation and inclusive growth.

A French and European Union territory in the heart of the Caribbean

Guadeloupe is a French overseas department located in the eastern boundary of the Caribbean Sea, 7 000 km from mainland France, and is part of the Lesser Antilles between Dominica and Antigua and Barbuda. Made up of twelve islands of which four are inhabited: Basse-Terre, Grande-Terre, Marie-Galante and La Désirade, it is the second-most populous French Outermost Region after Réunion, with a population of approximately 371 000 inhabitants (0.6% of the French population). With a GDP per capita of EUR 21 100 (Purchasing Power Standard - PPS in 2020), 65% of the EU 27 average, nine percentage points less than 2011, it is one of the 78 EU less developed regions.1 At approximately EUR 8.8 billion, the economy contributes to 0.3% of France’s total GDP (OECD, 2022[1]; IEDOM, 2022[2]).

Since 1992, Guadeloupe has been designated as one of the EU Outermost Regions (ORs). Due to their geographical location and structural challenges, including remoteness from mainland Europe, small market size and exposure to natural disasters, they benefit from specific support measures, including tailored application of EU law and access to EU programmes as well as ad hoc strategies. The other ORs are the five French overseas department and regions Mayotte, French Guiana, Martinique, Réunion and Saint-Martin; the two Portuguese autonomous regions of the Azores and Madeira; and the Spanish autonomous community of the Canary Islands.

The historical trajectory of Guadeloupe still shapes the current economic and social development context. While the first settlers can be traced back to 3 000 and 1 000 BC, and come from Arawak and Kalina-Carib descent, the modern history of Guadeloupe dates back to the 15th and 16th centuries. The first European to discover its presence was Christopher Columbus in 1493. He named the island after the monastery of Santa Maria de Guadeloupe in Extremadura (Spain). The first Europeans to settle on the island were the French, who formally established a colony on the main island of Basse-Terre in 1674. The first settlers had established sugar cane production in 1635, which became the primary economic activity, together with the slave trade, as the archipelago was used as a temporary staging post between the Caribbean and West Africa (Siegel et al., 2022[3]; Abenon, 1993[4]). After several years of struggle due to the invasion of British forces and the subsequent return to France in the 18th century, the definitive abolishment of slavery in 1848 marked a pivotal moment in the development of the archipelago. Officially an overseas department and region of France from 1946, Guadeloupe is now a culturally rich society combining several ethnicities from the Caribbean, Africa and Europe. Over time, this gave rise to the Creole culture that contributes to the creativity, culinary and cultural activities that strongly define the identity of the archipelago and its untapped economic potential (IEDOM, 2022[2]).

During the second half of the 20th century, Guadeloupe transformed significantly. Driven by large investments from mainland France particularly in the construction sector and infrastructure, the economy of Guadeloupe, like the neighbouring region of Martinique, expanded during the first two decades after the Second World War. In the space of fifty years, GDP per capita increased fivefold and average GDP growth stood at 3% (Insee, 2019[5]). This was coupled by the expansion of services activities including the establishment of administrative branches of both public and private French enterprises and the extension of the French social legislation such as a minimum wage. From 1950 to 1961, the total number of jobs in the tertiary and construction sectors increased by almost 64%, while the total and active population increased by 24% and 7% respectively.

From the 1960s onwards the two main sources of agriculture production, sugar and bananas, faced disruptive changes. Several factors including increasing competition from emerging and developing countries, as well as the increased demand for sugar beet, undermined the development of sugar cane. Total sugar cane production more than halved from an average of 150 000 tonnes in the early 1960s to less than 60 000 on average between 2010-18. The industry currently employs 10 000 workers with only two refineries still active. Likewise, with the start of the European Common Market in 1993 the local banana industry no longer benefited from preferential market access to France and began to face competition from multinational companies from South America at much lower prices. Other challenges such as the use of chlordecone, a pesticide that was used from 1972 to 1993, led to several environmental and health issues. However, both crops can remain competitive due to the subsidies provided by regional, national and EU authorities (DAAF, 2018[6]; Zébus, 1999[7]; Ministère des Outre‐mer, 2019[8]; European Commission, 2017[9]).

A small economy in search of new impetus

Over the last 20 years the economy experienced a dual path (Figure 1.1). In 2000-08, the region grew at 3.4%, above the national average, and among the French ORs, it was only surpassed by French Guiana and Mayotte. This was driven by infrastructure investment such as the modernisation of the port and the expansion of tourism and real estate activities. The latter were supported by a real estate tax exemption designed specifically for the overseas regions and departments. The financial crisis of 2008-09, reinforced by a local social crisis, slowed down growth and convergence. In 2010-19, the economy grew on average by 1%, domestic consumption shrank, and exports remained feeble. This was compounded by external factors such as hurricane Maria that destroyed 80% of banana production in 2017 (Insee, 2019[5]).

The upsurge of COVID-19 exacerbated social discontent and further hit the economy, which entered into recession in 2020. However, the lower dependency on tourism compared to other islands in the Caribbean and other EU ORs cushioned the negative effects, as did direct transfers from mainland France and the EU through an additional financial envelope of EUR 185 million from React-EU (Agence Nationale de la Cohésion Sociale, 2020[10]).

Figure 1.1. In Guadeloupe growth progressively slowed over the 2000s

Note: Caribbean Small States include Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Monserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

Source: Authors’ elaboration based on Eurostat Regional Database and World Bank databank 2022.

Guadeloupe is now a services-oriented economy with a large public sector. The structure of the economy is similar to the other French EU ORs in which 8 out of 10 jobs are concentrated in services, which also contributes 85% of gross value added (GVA) (Figure 1.2). What distinguishes Guadeloupe’s economy, however, is the prevalence of services related to public administration, which account for roughly 40% of GVA and employment, up from 26% in 1970 and 36% in 2000. Other services include business services at 27%, followed by commercial activities at 15% of GVA. Construction, an important engine of growth before 2009, accounted for 3.5% of GVA in 2020, half of the 7.5% seen in 2000. The rest of the economy is accounted for by agriculture, which accounts for roughly 2% of GVA although is declining, and industry including energy and manufacturing, which account for 9% of GVA and 7% of employment. Agricultural production is mainly focused on food processing, and largely depends on imports of intermediate inputs such as powdered milk for diary production. Surrounding neighbouring countries, considered Small Island Developing States (SIDS) also face similar challenges.

Figure 1.2. Services play a key role in Guadeloupe

Note: Panel A: Data on Saint-Martin GDP are not available. Caribbean Small States include Antigua and Barbuda, Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Monserrat, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, and Trinidad and Tobago.

Source: Authors’ elaboration based on OECD regional statistics database 2022, INSEE population census 2019 and ILO statistics.

Guadeloupe is more prosperous compared with neighbouring countries, thanks to national and EU support. In particular, the EU OR status allows the region to benefit from specific support mechanisms, including subsidies, fiscal exemptions and advantageous financing mechanisms. As an EU OR, Guadeloupe benefits from targeted resources from the European cohesion policy funds and from higher maximum co-financing rates – up to 85% of total project cost – with respect to other EU regions at 70%. Together, the French Government direct transfers and EU cohesion policy funds, although subject to some variations, finance between 50% to 60% of the operating budget of the region. Other national state measures include minimum income for unemployed people (Revenu de Solidarité Active - RSA), which stands at 20% of the work force and is among the highest joblessness rates in France after French Guiana, as well as tax exemptions on fuels and the possibility of mobilising domestic resources through the imposition of a dock duty (Octroi de mer) on imports that aims to protect local production from external competition.

Guadeloupe and other EU ORs face a paradox in which while they are wealthier compared with neighbouring countries such as SIDS they remain disadvantaged with respect to other EU regions. Public resources have played an essential countercyclical role in cushioning the effect of the multiple crises over time and in compensating structural handicaps, but they have not been accompanied by adequate incentives to foster local business development and entrepreneurship (Budoc, 2012[11]; IEDOM, 2022[2]). While Guadeloupe, similar to Martinique, is a mid-size economy with a GDP per capita that is 30% higher than the Caribbean average, the relative openness of the region measured by the ratio of trade to GDP is only 40%, well below that of regional counterparts (Figure 1.3).

Figure 1.3. Trade is less relevant for Guadeloupe than for nearby countries

Note: Bubble size reflect the GDP of each territory and country.

Source: Authors’ elaboration based on French General Directorate of Customs and Taxes, https://lekiosque.finances.gouv.fr/site_fr/regions/Region_index.asp World Bank databank 2022, https://databank.worldbank.org.

Mainland France accounted for 64% of total trade in 2021, up from 59% in 2000. If only exports are considered, mainland France account for 85%, nevertheless represent a tenth of total imports in nominal terms. Guadeloupe mainly exports agro-food products such as bananas, sugar cane and rum, which account for around 15% to 20% of exports. The region also plays an important role in re-exporting capital and consumption goods to other French Outermost Regions, such as Martinique, French Guiana and Saint-Martin, and to the French overseas territory of Saint Barthélemy, all located in the Caribbean basin. Imports are concentrated on energy and food products, with 16% of the total each, followed by vehicles and parts (15%) and pharmaceutical and medical equipment on 10%. Besides trade with France, other major partners are the United States and Canada, from which Guadeloupe imports energy products, other EU countries such as Belgium, Italy, Germany and Portugal from which the region imports motor vehicles and machinery, and to which it exports sugar and liquors. Trade with other Caribbean countries totals 2%, reflecting the limited trade integration in the Caribbean region (OECD/UNCTAD/ECLAC, 2020[12]).

Figure 1.4. Guadeloupe foreign trade excluding Metropolitan France and other French ORs, 2019-21

Note: The original French Nomenclature of Activities (NAF) at 3 digit have been converted to ISIC Rev 4 2 digit (Divisions).

Source: Authors’ elaboration based on French Ministry of Finance and Customs data, 2022, https://lekiosque.finances.gouv.fr/site_fr/regions/Region_index.asp

References

[4] Abenon, L. (1993), “Petite histoire de la Guadeloupe”, torrossa.com, https://www.torrossa.com/gs/resourceProxy?an=5123284&publisher=FZ2990 (accessed on 28 February 2023).

[10] Agence Nationale de la Cohésion Sociale (2020), “React-EU la réponse à la crise”, https://www.europe-en-france.gouv.fr/fr/programmes- (accessed on 1 March 2023).

[11] Budoc, R. (2012), Pour un renforcement de la coopération régionale des Outre-mer, Rapport du Conseil économique, social et environnemental, https://www.lecese.fr/sites/default/files/pdf/Rapports/2012/2012_09_cooperation_om_rapport.pdf (accessed on 1 March 2023).

[6] DAAF (2018), “Présentation et actualité de la filière canne-sucre-rhum”, https://daaf.guadeloupe.agriculture.gouv.fr/IMG/pdf/DAAF_Fiche_presentation-filiere_canne-sucre_cle8be2b9.pdf (accessed on 28 February 2023).

[9] European Commission, D. (2017), Evaluation of measures for agriculture carried out for the outermost regions (POSEI) and the smaller Aegean islands, Publications Office of the EU, https://data.europa.eu/doi/10.2762/565811 (accessed on 14 January 2022).

[2] IEDOM (2022), “Rapport annuel économique 2021: Guadeloupe”, https://www.iedom.fr/guadeloupe/publications/rapports-annuels/rapports-annuels-economiques/article/rapport-annuel-economique-2021-iedom-guadeloupe (accessed on 28 February 2023).

[5] Insee (2019), L’économie de la Guadeloupe entre 2000 et 2018 : l’activité redémarre en 2014 après la crise économique et sociale de 2009, https://www.insee.fr/fr/statistiques/5228072?sommaire=5228084 (accessed on 1 March 2023).

[8] Ministère des Outre‐mer (2019), “Plan d’action contre la pollution par la chlordécone en Guadeloupe et en Martinique”, https://sante.gouv.fr/IMG/pdf/synthese_plan_chloredecone2018.pdf (accessed on 28 February 2023).

[1] OECD (2022), Development Strategy Assessment of the Eastern Caribbean, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/f1566c7a-en.

[12] OECD/UNCTAD/ECLAC (2020), Production Transformation Policy Review of the Dominican Republic: Preserving Growth, Achieving Resilience, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/1201cfea-en.

[3] Siegel, P. et al. (2022), “Analyse préliminaire des prélèvements sédimentaires en provenance de Marie-Galante”, Vol. 18/1, pp. 205-211, https://doi.org/10.1080/01916122.1994.9989445.

[7] Zébus, M. (1999), “Paysannerie et économie de plantation. Le cas de la Guadeloupe, 1848-1980” No. 05, http://journals.openedition.org/ruralia/110 (accessed on 28 February 2023).

Note

← 1.  Less developed regions are defined as regions where the gross domestic product (GDP) per inhabitant is less than 75% of the EU average.