Smart Media 360:
The onset of the global financial crisis in 2008 resulted in a drop in tourism, and a halt in Aruba’s refining activity. These led to a double-dip recession on the island. However, thanks to the implementation of sound macroeconomic policies and on-going fiscal consolidation, the Aruban economy is gradually recovering.
Hon. Minister de Meza, other than renewable energy, which sectors of the Aruban economy have some of the best prospects for generating additional growth, and attracting higher levels of FDI?
H.E. Mike de Meza:
Tourism is the biggest economic pillar in Aruba. It has a lot of growth potential, both for the near future and the long-term. Right now, as you know, we are busy rehabilitating the refinery. It is done with the commitment to make it a green refinery. This means, we are not going to utilize heavy fuel oil, but natural gas. Emissions will drop significantly (between 98% and upwards). We are also going to build a biofuel Algenol algae-supported refinery, which is going to capture the CO2 of hydrogen plants. A lot of CO2 goes into the air (about 99.9%). Once that is captured, we are going to switch them towards the emission of CO2 in the chimneys or process units for furnaces that normally pushes out a lot of CO2. That is going to be done in conjunction with our partners. Together with The Netherlands Research Organization (TNO), Carbon War Room (CWR), and the Rocky Mountain Institute (RMI), we will be studying possibilities, and making sure they can be successfully executed. We also have other partners like Aruba´s Investment Agency (ARINA) that are going to be part of this project. The refinery and the government have a bit of money to get this started. It is going to be functioning as soon as the refinery is also up and running.
Very close to the refinery area (which is actually in the premises), we are going to build a 5MW solar park. We want to do more in the refinery towards utilizing green energy.
We have the knowledge economy, which is a pillar that we can see substantially grow. We do that in part with Europe, and North and South America. We are also active with the neighbouring islands in the Caribbean.
I would say that these are the three pillars that promise to generate a great deal of growth.
Smart Media 360:
Aruba is involved in a number of exciting projects, including the Barcadera Free Zone, the Green Zone for high technology and renewable energy companies and the San Nicolas Special Zone.
Kindly comment on the “Green Gateway” concept, and how initiatives like this help foster the overall growth and competitiveness of the Aruban economy in areas like logistics, maritime trade, commerce, energy and services?
H.E. Mike de Meza:
We are busy with new legislation where the Free Zone will have under its authority all the other free zones—the green zone and the Special Zone like San Nicolas. We want to bring in a new free zone in the system that is going to be competitive with the region. We are going to have a strong one-stop shop so that when investors come from abroad they can just go to one place and get their business done, as well as all the needed information such as integration issues, banking matters, and so on, to streamline processes, and make things simpler and easier. Oftentimes, they need to do all sorts of things to comply with the recommendations, and rules and regulations of the Financial Action Task Force (FATF), which is important and must be followed. The fact is, if you want to play in the major league, you have to comply with their rules and regulations. It is not easy but it is something that we are doing. There is a whole new package coming out in the Free Zone by the beginning of next year. It is tough for free zones all over the world right now, but we will persevere. A very important component of the Free Zone is the Green Gateway.
Apart from the focus on green energy, we have also developed a roadmap to 2020 where Aruba will convert 100% of our energy production to alternative energy. We have been doing that together with our partners (the same ones I have mentioned). We have developed the infrastructure, and have paved the way for Aruba to export this knowledge in the region, and worldwide, all the while establishing itself as a Green Gateway, connecting Europe to the Americas, and vice versa.
Aruba is known for its strong rule of law. It enjoys good political stability. It has good asset protection and a firm legal framework. Added to this is a very low crime rate. We know the American, European, and Caribbean cultures very well. We also speak four languages.
There is a lot of interest in the Green Gateway project. Companies such as Schiphol Airport Group, TNO, Gasunie, Port of Amsterdam, and the likes. There are a lot of companies here from the Netherlands who are being quite successful. More companies are interested in establishing their operations here. Last week, I had a meeting with the British ambassador to the Netherlands. We talked about being more active in Britain for this gateway. Currently, they have a lot of interest in it.
As a small country, we do not have the pretention that we could become the gateway for all countries and all companies. For big companies, you focus directly on the source. We are focused on medium to small-sized companies because of what we can offer them.
We are also busy with Germany and some other countries. That is with another pillar—hydrocarbon exploration that is underway with Repsol and Total. We are now at a more advanced stage of development. After having done both 2D and 3D seismic campaigns, piston core sampling, and getting the full prospects on the northern side of Aruba, within the next 2 years, there will be exploratory drilling. A minimum of one will be done, but there are four prospects for natural gas exploration so we will see how it goes.
Smart Media 360:
The administration of H.E. Prime Minister Mike Eman set out an ambitious long-term strategy for its utility companies, and the country as a whole, to embrace a flagship green energy vision for Aruba to utilize 100% renewable energy by 2020.
As Minister of Energy and Environment what role are you playing in making the Green Aruba vision a reality today?
H.E. Mike de Meza:
There are two sides of energy—demand and supply. First off, energy is important for the economy. If you look at what is taking place around the world, you will see that as the economy grows, energy consumption and demand grows. The process both requires demand and supply management in order to determine how to deal with it in the most effective and efficient manner.
The biggest challenge that we are still trying to overcome is awareness — changing mind-sets and habits — how we consume electricity in a more efficient manner. We have conducted a media campaign, including efforts in education. We have reached a lot of children through the campaign, enabling us to reach into the homes of Aruban citizens with a package of awareness with examples of how to be more energy efficient, and why it is so important for both the economy and environment. We all have to contribute towards achieving a better environment.
We have done a lot on the demand side. We have adjusted laws. Take duties for example; if you buy a regular diesel car, you pay more than 50% in import duty; whereas, if you purchase a hybrid car, that’s less than 50%. A completely electric car only gets 2% import duties. Many of the energy efficient electrical equipment or household appliances, if they meet certain requirements, import duties are dropped from 26% to 2%. Also, if you want to bring in solar panels and the like, import duties have been dropped from 20% to 2% to make it more attractive. We are still busy coming up with additional incentives for the demand side.
On the supply side, we have moved away from the conventional way of producing electricity, and have begun converting seawater into very high quality potable drinking water. We used to use the conventional way of converting seawater through evaporation, which was very expensive, using multi-stage flash distillation (MSF). Now, it is done through seawater reverse osmosis (SWRO), which is very efficient. We are talking about a better run efficiency of over 400%.
Likewise, we have moved away from spinning turbine engines with steam to more modern engines that are at least 60% more efficient. We are continually moving towards better, more efficient technologies. We are also moving from heavy fuel oil to achieve combustion to natural gas and LNG. There is going to be a transition period as we expand our alternative energy sources, such as the wind and the sun, which we have in abundance here in Aruba. There is also Ocean Thermal Energy Conversion (OTEC) from the power of the ocean and its shifting temperatures. We now have 40% of the installed capacity, which means anywhere between 20% to 25% effective coverage of the demand. Likewise, we are also in the process of building a solar park, and we are putting solar panels on the roof tops of our schools. We have already done that with an additional 10% of our demand, and we intend to expand.
There is the second wind park that should help double the capacity of what we currently have. Right now, we have 30% installed capacity, and we should go towards 50% to 60%. We foresee that by next year, we should pass the 50% mark in alternative energy.
The second phase, or the other 50%, poses an even greater challenge because of grid stability, but we decided that as we turn towards more alternative energy sources, we have to look at our system as a total comprehensive system where we have management control back-ups. Right now, we have a flywheel mechanism as back-up to store energy. In addition, we are also working with Tesla on a battery system. We are also looking into Underwater Compressed Air Energy Storage (UW-CAES). We are even looking to build a hydro reserve in the Natural Park of Aruba. There are a number of different on-going projects. The back-up system is very important to prepare for dips in the system. Tourism is an economic pillar (contributing 80% of Aruba´s GDP) so we cannot afford that. As you can see, we are busy with a whole multitude of projects.
Smart Media 360:
Tourists, business travellers and Aruba’s citizens benefit from a communications network that offers good cellular coverage through companies such as SETAR and Digicel, as well as an abundance of Wi-Fi-Hotspots and fast Internet connections at all the hotels.
What kind of steps are you taking as Minister of Communication to ensure that Aruba’s ICT sector remains competitive, reliable and innovative?
H.E. Mike de Meza:
Both SETAR and Digicel are two big companies on the island, with the latter having international leanings, following the latest technologies. SETAR is a financially sound company. The people of Aruba feel like they own SETAR; therefore, it has the biggest client base on the island. Digicel is a good competitor. They do work together. They research with several global players, and introduce technologies that can be seen in Aruba. We are busy with the 4G system so we are at par with the rest of the world. We have cable connectivity with almost every significant country in the region, including the US — South and Central America — as well as the Caribbean, including Puerto Rico. SETAR has invested in a lot of these things. One of its goals is to keep Aruba competitive with the rest of the world.
Aruba is a small island that is very much dependent on what happens around the world. Because of tourism, we need to provide the latest technology. We have one of the highest penetrations of cellular phones. If you look at social media such as Facebook, the percentage of people who have access to this in Aruba is very high. In fact, it is higher than what you would find in most countries worldwide. The utilization of the Internet and social media is something that we promote. We make sure that our telecommunication companies are up to par. We are changing our legislation to allow that, affording these companies the flexibility they need to operate more freely.
Smart Media 360:
Minister de Meza, our report features the top leaders in Aruba’s, political and business community. You have a distinguished track-record in government holding multiple portfolios at various points in your career.
What have been some of your biggest professional satisfactions to date in supporting the growth and dynamism of the Aruban economy?
H.E. Mike de Meza:
As you know, I am an engineer. I also studied industrial economics, and worked in the energy sector for several years, in the refinery. I had my own engineering firm before joining politics. My first time in government was as Minister of Finance, Communication and Energy, at a very difficult time in 2009, right after the global financial crisis which caused a double-dip recession in Aruba. If you look at countries like Greece, France and the US, they were also quite badly affected. Aruba had a 15% economic loss. It was not easy. The income of the government dropped 25%. That was the average for four years.
In a situation like that, you need income. You can choose to increase taxes, or invest in your economy to gain investor confidence. To increase taxes across the board would have made the situation even worse. I must say, when I looked at the IMF and the European countries in other parts of the world, many of them increased their taxes, effectively strangling their economy even further. This went on for seven years, and most of them did not solve the problem.
The Government of Aruba decided to invest in the economy, taking a well-balanced and carefully calculated risk. Because taking loans will increase debt, you have to make sure that you invest in your infrastructure. Keep investing in education. That is very important. Make sure that your healthcare system is in place to see to the welfare of your society. At the same time, try to increase employment (especially those with lower salaries) to maintain a low crime rate. You do not want to create a situation that will eventually go out of control. At the end of the day, they just want to put food on the table. When the global market improves, you are ahead of competition because you have invested in creating and improving a product, and securing your position in the market. Even in a time of crisis, having a strong rule of law, political stability, low crime rate, and a better product to offer certainly helps you gain investor confidence.
I think it was 2012/13 when we had an association of cruise ships in Aruba. Our efforts helped encourage an increase of more than 50,000 tourists on the island. We see about 2 million tourists, 1.1 million of which are transient, staying for about 2 to 3 days. About 700,000 come with the cruise ships. Both groups are very important for us. The tourism sector kept growing in Aruba, even in tough times because of improvements in our infrastructure. I feel strongly about that. You should always have the kind of infrastructure that is compatible to where you want to be. We invested in roads, telecoms, water, electricity, and so on.
We invested in infrastructure close to the homes of the people. If the people who live in the country are happy, your tourists will also be happy. That is something that we focused on. We believe that we should have a 5-star island, so we made investments all over the island.
As the Prime Minister would say, we should not only have 5-star hotels, but also 5-star hospitals, schools, airports, sports complexes, and so on. We made island-wide investments. That is very important. We did it during tough times. As you can see, public finance is getting better again. Times have changed. Aruba has weathered the storm. There are a lot of investments in place, and more will come in the next years. We are now busy shrinking the budget deficit.
Internationally, the target would be to have a deficit below 3% of your GDP. During the bad times, we reached over 9%. Today, we are at 2%. Next year, the deficit will be at 0.5%. The year after that should reflect a +0.5% surplus. Even compared to the Dutch kingdom, we have the lowest, which shows that the direction we took was the correct one. We maintained the socio-economic balance in the island, and kept the crime rate low. Many times, big rating companies like Standard & Poors´or Fitch, and even the IMF do not give enough value for these types of programs.
In 2009, apart from the global financial crisis and the refinery that was closed, we had new challenges with the social funds. The civil workers’ pension — that was going in a very bad direction — almost to the point where it went bankrupt. It dragged down all the financial institutions on the island. We needed to reverse that. That was done. We had problems with our old age pension scheme, such that if we did not do anything, we would have been finished. That would have been too much of a big burden for a small economy to carry.
On government income, we had a medical care system where everyone is insured, and the government contributes a part of the income. Employee premiums do not cover the total costs. The government was going to have to cover the balance, and that amount was going way out of proportion. We had to attend to that. Today, the civil pension is safe. It is very sound and going in the right direction. We have what we call a degree of coverage over 100%, which is good. It used to be at 70%, which was very bad. Old age pension and healthcare are very sound. Of course, it requires continuous tweaking.
We now have a new operator for the refinery that was previously closed. We have also re-opened the airport. We have returned all the strategic partners back to the island. Those were very important achievements that make you feel good. That is for finance, invigorating the economy.
The same goes with the environment. We have a landfill that needs to be shut down in the next month. We have plans of doing that in favour of greener solutions. We are looking into gasification, which should reduce the volume of waste by 90%. We are looking to get into a PPP to get this done. It is predicted that this should produce 10% of our demand. Things are going well on that front. I am quite pleased with what we have achieved so far.
Tourism has a lot of challenges. It is about targeting the right market, at the right place, at the right time, to make sure that you continue to attract the desired foot traffic.
Smart Media 360:
Thank you for your comments.