Article published by Mr. José Carlos Francisco in the Gaveta Económica in the November 2015 issue.
A few days ago, a senior official of the Government of the Canary Islands and a businessman asked me about my vision of the short and medium-term future of the Canary Islands economy. My answer surprised them greatly, basically because the analysis was based on circumstances and facts that do not occur on our islands. I told them that a good part of our economic future depended on the referendum next year in the United Kingdom, on the permanence or abandonment of the European Union, on the geopolitical situation in Tunisia and Egypt, on the dollar-euro and euro-pound exchange rate, on interest rates in Europe and America; that is, the movements of the Federal Reserve and the European Central Bank and of course, oil prices. To top off their surprise, I told them that they had to be attentive to the consequences of migrations in the EU and also to economic immigration to the islands, and even to the “Trade and Investment Treaty between the EU and the US.”
I'll explain myself. If “Brexit” is consummated, a first consequence could be that the customs requirements (today non-existent) for British people entering the islands would become more bureaucratized and that affects 30% of our tourists.
Tunisia and Egypt are two competitors of the Canary Islands, which have tradition and modern tourist infrastructure, but the serious instability of the area is severely penalizing, to the point that England canceled its flights. In 2011, at Corporation 5, we estimated that the problems in the Maghreb had caused an increase of 550,000 visitors to the islands that year. It is not unreasonable to think that the upsurge in violence in the two aforementioned countries will improve expectations for the end of 2015 and of course 2016 in our archipelago.
The Dollar/Euro exchange rate is very important for the cost of imports in the islands, particularly oil, but to the extent that the Dollar remains strong, which is more than possible if the Federal Reserve increases interest rates and Europe does not, our competitors in the winter season (Caribbean) will lose steam compared to the Canary Islands. Let's think that in the last two years we have gained 8% competitiveness with respect to the Dollar and 14% in relation to the pound sterling, due to the relative devaluation of the Euro.
Historically low interest rates and oil prices (50% decrease in two years) are a tailwind that drives the Canary Islands economy, highly dependent on energy production with fossil derivatives, the cost of transporting goods and people, and bank financing.
The effects of migrations and the EU-US Treaty, still under negotiation, will be discussed in another article.
In short, and contrary to what the “umligüistas” think, an economic intelligence system on the islands must be especially attentive to what is going to happen outside, in order to then make internal decisions in accordance with the new circumstances. These internal decisions have to do with education, training, innovation, deregulation and simplification of regulations, especially regarding the territory and the environment.
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