IB Project

1

ARUBA

2

ARUBA

I. INTRODUCTION:

Aruba is an island in the Caribbean Sea, 19 miles north of the Venezuelan coast.

This member country of the Kingdom of the Netherlands has a total area of 193 square

kilometers, which is 19.6 miles long and 6 miles across. It is a flat, riverless island with

scant vegetation and renowned for its white sand beaches. Its tropical climate is

moderated by constant trade winds from the Atlantic Ocean. There is little seasonal

temperature variation so the temperature is almost constant at about 81 degrees

Fahrenheit. Although hurricanes frequent the Caribbean, Aruba lies outside the

Caribbean hurricane belt and is rarely threatened. (www.cia.gov). Aruba is on Atlantic

Standard Time year round (equivalent to Eastern Daylight Savings Time).

II. SOCIOECONOMIC AND CULTURAL FACTORS

According to the Central Intelligence Agency, in December 2008, Aruba had an

estimated population of 101,541 people. The estimated average age of the population is

37.6 years old; however, the estimated average age of males is 35.8 years old, and the

estimated average age of females is 39.3 years old. About 70% of the population is

between the ages of 15-64 years old, which is good for the Aruban labor force that

stimulates Aruba's economy. The table below, which was obtained from the Central

Bureau of Statistics, illustrates the level of education of Aruba’s labor force in the years

1991 and 2000. As of February 2008, the estimated unemployment rate was 3.8%

(www.imf.org).

3

Education characteristics of the labor force (in percentages), 1991 and 2000

1991 2000

Basic level (primary education or lower, first level of secondary

education, second level of secondary education)

84.2 80.4

Intermediate level (higher education but not university degree) 7.3 10.3

High level ( university degree, post graduate university degree) 8.5 9.2

TOTAL: 100.0 100.0

Source: CBS (www.cbaruba.org)

The Aruban population’s ethnic background is 80% mixed white/Caribbean

Amerindian, and 20% other. Their religions consist of Roman Catholic 80.8%, Protestant

9%, other (includes Hindu, Muslim, Confucian, Jewish) 5.6%, and none or unspecified

4.6%. According to a 2000 census, these islanders speak a variety of languages such as

Papiamento (a Spanish-Portuguese-Dutch-English dialect) 66.3%, Spanish 12.6%,

English (widely spoken) 7.7%, Dutch (official) 5.8%, other 2.2%, and unspecified or

unknown 5.3%. (www.cia.gov)

With so many different countries that have migrated to Aruba, it is no wonder that

they have a culture of intermingling values, customs, and traditions. The Aruban people

are the product of these cultural fusions and their stability, constancy, and fun-loving

philosophy is reflected by the people’s love for music and celebration. Even though the

islanders are laid back and casual, any form of public nudity is banned in Aruba; and,

although topless sunbathing and swimming is not against the law, most resort owners

won’t permit visitors to do it in their premises. (http://www.associatedcontent.com).

Despite a multi-cultural background, Arubans share in common a strong national identity,

buoyed by the success of a healthy economy, a strong educational system and with its

people enjoying one of the highest standards of living in the Caribbean

4

(www.aruba.com). Even with their high standards of living, Arubans have a high rate of

drug dependency as a high percentage consume cocaine on a regular basis.

III. POLITICAL AND LEGAL CLIMATE

Aruba has a high degree of political stability. They have a Parliamentary

democracy with Dutch roots. The system of Government in Aruba is based on Western

democratic principles. The Queen of the Kingdom appoints the Governor who serves for

a term of six years and acts as the sovereign’s representative on the island. The

Legislature, which has responsibility for all domestic affairs, consists of a 21-member

parliament, elected by popular vote for a four-year term of office. The Council of

Ministers, presided over by the Prime Minister, forms the executive power. Under

“Status Aparte,” Aruba functions as an independent entity within the Kingdom of the

Netherlands. Aruba’s Dutch foundations, combined with international influences, have

contributed to a modern society with an advanced infrastructure. (www.aruba.com)

Their legal system is based on the Dutch civil law system with some English common

law influence, and their judicial branch is the Common Court of Justice of Aruba (judges

are appointed by the monarch) and the Antilles Netherlands and a Supreme Court of

Justice in Netherlands. (www.cia.gov) Economic development is an important priority

for the Aruban government and a significant amount of funding is provided to the

education system. (www.traveleguides.com).

5

IV. ECONOMIC CLIMATE

Aruba has an open system with tourism providing the largest percentage of the

country’s income. Other major domestic industries include wholesale and retail trade and

repair, followed by hotels and restaurants, oil refining and storage, offshore banking, and

aloe cultivation. The high level of tourism in Aruba has allowed the country to

significantly reduce its financial deficit and dedicate resources to the tourism industry

(www.traveleguides.com). The infrastructure of this small island provides the financial

opportunities for their economy to flow since they rely heavily on their ports and air

connections. There are 3 ports: Oranjestad, the main commercial and cruise ship facility;

Sint Nicolas, used by the oil industry; and Barcadera, which serves the industrial zone on

the Leeward coast. The island has an airport with international facilities in the Capital of

Oranjestad. Not all roads are asphalted, making some drives a bit bumpy.

Aruba has a relatively high standard of living as opposed to other Caribbean

countries and has a high standard of government service provisions. There is a low

unemployment rate and low poverty. According to the Central Intelligence Agency, The

World Factbook for Aruba, in 2005, the GDP was estimated at $2.258 billion with the per

capita GDP of around $22,000. Also in 2005, GNP was $1.98 billion dollars with the per

capita GNP of around $19,800. The inflation rate is 3.4%.

The Aruban currency is called Aruban guilder/florin (AWG). Its foreign

exchange rate is 1 AWG = $1.79 U.S. Dollar and 1 Euro = 2.18 AWG. In order to

increase exports and foreign exchange earnings, Aruba has created a Free Zone a/k/a free

trade zone. Only companies involved in “commercial” or “industrial” activities can be

licensed to operate within the Free Zone. These companies receive sizeable fiscal

6

incentives such as exemptions from import duties and low rates of taxation. In 2006,

foreign direct investment (FDI) inflows more than doubled, reaching 13½% of GDP,

though preliminary estimates indicated a slowdown in inflows in the first half of 2007.

(www.imf.org). The Bank of Aruba is responsible for the collection of foreign direct

investment data. As an overseas territory of the Netherlands, Aruba is an associate of the

European Union (EU). Because of this, the common import tariff of the EU single

market is applied. However, Aruba does not form part of the EU fiscal area and

consequently has its own tax policy. (www.unctad.org). Some industries have a number

of tax incentives to encourage investments; although, this is done on a selective basis.

Aruba is a member of the Regional Trade Agreement Overseas Countries and Territories

(OCT).

V. ANALYSIS

Aruba is known for its beaches and laid back island flavor, which makes it a great

place to invest especially if you are in the tourist industry. Since the country has such

nice weather and very little major natural disasters, your return on investment will be

profitable. The United States accounts for more than 70% of the tourist arrivals and

almost 60% of imports of goods. Although the island was impacted by the recent and

ongoing financial problems of the United States, their economy was able to sustain the

impact by making various changes to their own economy to stay afloat.

Aruba does well since they are one the most developed islands in the Caribbean

with market-friendly policies and a stable macroeconomic environment. These are just

some of the contributing factors of foreign direct investment (FDI). Also, foreigners are

7

more than willing to have investments in Aruba since they receive tax incentives (even on

investments as low as $55,000 USD) such as a reduction of corporate tax rates;

exemption from income tax on dividends paid out to shareholders, provided the

dividends are paid within two years after the year the profit has been made; exemption

from import duties on building supplies for premises; exemption from import duties on

packing materials, machinery and equipment, raw materials, semi-manufactured products

and components to be used in the production process; and exemption from real estate tax

(www.imf.org). Because the Bank of Aruba tracks all the FDI data, the process of

obtaining information is less confusing than in other countries. The infrastructure of 3

ports and an airport makes importing and exporting of goods easier and more efficient.

The free zones are located a short distance from the harbor and airport. One of the

drawbacks on the island is that roads need to be better maintained as some are not

asphalted, causing unnecessary costs to vehicle owners. Investors will be happy to know

that electricity is not scarce since it is sourced by fossil fuel. Communication on the

island is a fully automatic telecommunications system with over 38,700 main lines,

105,700 cellular lines with 3 wireless service providers, and over 24,000 internet users.

Another good reason to invest in Aruba is the stable foreign exchange rate - with

the rate of 1 Aruban guilder/florin (AWG) equal to $1.79 U.S. Dollar (USD). If an

investor were to invest $100,000 AWG, it would be equal to a little less than $56,000

USD. Because of Aruba’s membership in the Regional Trade Agreement Overseas

Countries and Territories (OCT), they are able to offer reduced tariffs and restrictions on

trade between two or more nations within a certain region, which will benefit any foreign

investor.

8

Promotion of small business is a priority for the government due to the fact that

small businesses adapt more rapidly to changes in the market with appropriate support

and encouragement. They provide much needed stability to the economy. Since Aruba is

part of the Free Zone, companies that operate in the export business of goods and services

can enhance their competitive edge by choosing the free zone status. A free zone

company in Aruba enjoys four major financial benefits: (1) 2% tax over all profits

generated from free zone activities; (2) 0% import duties on goods imported and exported

through the free zone; (3) 0% turnover tax over the turnover generated from free zone

activities; and (4) exemption from foreign exchange commission on foreign currency

payments. Some other benefits include: no local partner is required to establish a free

zone company (full foreign ownership); no import duties on equipment and machinery

acquired for company use; a US dollar account can be maintained ensuring efficiency in

payments; no minimum investment capital required to start up a business in the free zone;

custom clearance office located at the main gate of the free zones; modern control

mechanism and clear regulations; flexible construction possibilities; and 24-hour

security.(www.fzanv.com).

Recently, many of the hotels were renovated, which created jobs in the

construction industry and, of course, other hotels will begin renovations to stay

competitive in the market. When changes such as this occur it stimulates the economy

and creates profits for investors. Many of Aruba’s labor force is cross-trained in order to

be able to work in a diversity of jobs - as one job finishes, such as construction, the

employees can stay employed by working in another position, such as

housekeeping/janitor, waitress/waiter, hotel clerk, etc. With Aruba’s labor force so

9

diversified, not only in culture, but also through cross-training, investors will have no

problem in hiring skilled workers or in training the labor to perform the job. The wages

for labor in Aruba are competitive with other island countries; however, the labor force in

Aruba is known to be loyal to their employers as they value their jobs and take pride in

what they do.

I highly recommend investing in Aruba because of all the tax benefits and

incentives, the low exchange rate, the free trade zone, the stable political environment,

the infrastructure and communication, the skilled labor force, and the island environment.

Although, I focused on investing in tourism, it, by far, is not the only good market

investment; as the wholesale and retail trade and repair, restaurants, oil refining and

storage, offshore banking, and aloe cultivation are all also good to invest in for much of

the same reasons as the tourism market.

As a side note, the best time to visit the island of Aruba is between the period

from April 15th to December 14th which is the low tourist season rather than during the

tourist peak season from December 15th until April 14th.

10

VI. REFERENCES

1. http://www.aruba.com/about/folklore.php

2. http://www.aruba.com/about/lawandorder.php

3. http://www.arubachamber.com/establishing.htm

4. http://www.cbaruba.org/cba/readBlob.do;jsessionid=98F780FEB8E6AA3C43892649D324839C?id=497

5. https://www.cia.gov/library/publications/the-world-factbook/geos/aa.html

6. http://www.fzanv.com/htmlEnglish/engAFZadvantagesBenefits.html

7. http://www.imf.org/external/pubs/ft/scr/2008/cr0878.pdf

8. http://www.traveleguides.com/aruba.php

9. http://www.unctad.org/sections/dite_fdistat/docs/wid_cp_aw_en.pdf