Aruba: Country and Foreign Investment
Economy and Currency
The pillars of the Aruban economy are tourism, oil refining, manufactured exports and offshore financial services. Tourism is the island's principal industry, employer and foreign exchange earner. Constant warm weather and some of the most beautiful beaches in the world attractedover 1.4m visitors in 2012, approx. 40% being American. Hotel capacity has expanded fivefold since 1985.
Due to its proximity to oil-rich Venezuela the island has a petroleum refining industry. The Valero oil refinery (which in 1979 was one of the biggest in the world and employed some 16% of the Aruban work force) was re-opened in 1993 and became both a major source of local employment and a major earner of foreign exchange.
After a 17-month closure, the refinery re-opened in 2011 and in March 2012 Valero Energy Corp. announced it would halt operations at the refinery from the end of that month. By September the same year, Valero announced that jet fuel, gasoline, diesel and fuel oil would be supplied to Aruba. In addition, the site would be offered to third-party customers as a storage capacity for oil and crude.
Manufactured exports have increased rapidly as a result of the opening of the Free Zone (see below) and the island's privileged access to the EU and other markets.
Aruba has a series of fiscal incentives in place to attract offshore banks, insurance companies and business in general (see Offshore Legal and Tax Regimes). The island's Financial Services Commissioner, a post created in 1995, ensures a high level of regulatory supervision.
After Aruba split with the Dutch Antilles in 1986 it both ceased to be a party to and to rely on double taxation treaties as the main impetus of the development of its financial services industry. However, the global financial crisis and the shutdown of the Valero oil refinery has seen unemployment rise from 6% in 2008 to around 9.5% in 2012.
In 2000 Aruba was considered to have one of the highest standards of living in the West Indies. GDP per head was US$21,800 at PPP by 2004. The economy grew at an average of over 4% per annum for most of the 1990s, 9/11 resulted in a major setback for tourism, with a shrinkage of 1.5% in GDP in 2002. However, growth returned in 2003. Real GDP growth was 2.5% in 2005. The local currency is the Aruba florin which since 1986 has been tied to the US dollar at a fixed rate of 1.79 Aruba florins to the dollar.
In June, 2005, the International Monetary Fund issued a generally favourable report on Aruba:"After a two-year long recession, GDP growth reached 1.4 percent in 2003, helped by strong private investment, and accelerated to an estimated 3% in 2004. Growth is projected to level off at about 3% in 2005, as hotel capacity constraints slow tourism growth. Planned investments in the oil refinery and the hotels are expected to keep growth at about 2% in the medium term."
"Strong domestic demand, fueled by double-digit private credit growth and fiscal expansion, and a sharp increase in the oil price in 2002, had reignited inflation, which peaked at about 4.3 percent in mid-2003. To stem inflationary pressures, credit ceilings were reintroduced in 2003 and subsequently tightened in 2004. Average inflation fell to 2% in 2004. The real effective exchange rate of the Aruban florin, which has been pegged to the US dollar since 1986, has remained largely unchanged since 1998."
However, the IMF noted deterioration in Aruba's fiscal sitation, and in October, 2005, the Governor of the Aruban Central Bank, Rob Henriquez, called for a new law to prevent ministers from exceeding the budget. "The government is spending way too much money. They have to stop doing that, otherwise the Central Bank can no longer be responsible for the position of the florin," he said.
In 2008, Standard and Poor's Ratings Services assigned its 'A-' long-term and 'A-2' short-term foreign and local currency sovereign credit ratings to Aruba. Standard and Poor's also said that the outlook on Aruba was stable.
"The ratings on Aruba reflect its prosperous economy, high level of social development, resilient tourism sector, and record of stable democracy and the rule of law," explained Standard & Poor's credit analyst, Joydeep Mukherji, continuing:
"Offsetting these positive factors are Aruba's narrow economic base, debt burden, and limited monetary and external flexibility."
According to S&P, Aruba's per capita GDP exceeded USD25,000 in 2007 compared with about USD17,000 in 1997.
The Aruba Department of Economic Affairs reported GDP per capita of just over USD26,000 for 2011. Real sector GDP for 2011 is forecast to reach 9.9% (-5.5% in 2010). Tourism is forecast to grow - but is heavily dependant on the overall US economy and consumer confidence.
In June 2013, S&P downgraded its 'A-/A-2' sovereign credit ratings for Aruba to BBB-plus, stating that the 'outlook on the new rating is stable'. The downgrade was due to 'deteriorating fiscal and external balance sheets following the closure of the oil refinery'.