Caribbean Businesses Show Strong Innovation Potential but Face Persistent Barriers, IDB Report Reveals

New Data Highlights Opportunities for Growth and Policy Actions to Overcome Challenges.

A recent report from the Inter-American Development Bank (IDB), titled "Innovation for Faster Economic Growth in the Caribbean: Are We There Yet?", sheds light on the transformative role of innovation in driving economic growth across the Caribbean region. While many businesses in The Bahamas, Barbados, Guyana, Jamaica, Suriname, and Trinidad and Tobago are either innovative or poised to innovate, significant barriers hinder their progress.

According to the report, businesses that adopt innovative practices report substantial advantages:

• Productivity is 26% to 35% higher in innovative firms compared to non-innovative firms.
• Sales per worker are 21% to 81% higher, depending on the type of innovation.

The report also highlights an increasing focus on digital and green innovation, with nearly 85% of firms categorized as potential digital innovators and 48.8% as green innovation prospects. The percentage of firms filing patents rose from 7.9% to 12.7% between 2014 and 2020, with a notable increase in patent activity among female-led firms.

Challenges to Innovation

Despite the potential, Caribbean businesses face significant barriers that stifle innovation, including:

• Macroeconomic and Regulatory Hurdles: Bureaucratic inefficiencies and inconsistent regulatory frameworks complicate business operations and innovation efforts.
• Access to Finance: Limited availability of affordable and innovative financing mechanisms remains a key constraint.
• Labor Market Constraints: Skill mismatches and a lack of specialized talent impede the growth of innovative industries.

The impact of the COVID-19 pandemic further exacerbated these challenges, delaying economic recovery for several Caribbean nations. By the close of 2024, many countries had only just returned to their pre-pandemic levels of activity.

Policy Recommendations for Fostering Innovation

The IDB report underscores the need for targeted policy interventions to unlock the region’s full potential, including:

1. Improving Labor Market Efficiency: Better matching of skills to industry demands through education reform and vocational training programs.
2. Expanding Access to Finance: Providing tailored financial products for startups and innovative firms, alongside government-backed guarantees to encourage private-sector lending.
3. Digital Transformation: Accelerating the digitalization of public services to reduce administrative burdens and foster innovation.
4. Entrepreneurial Support: Strengthening incubators, accelerators, and advisory services for small and medium-sized enterprises (SMEs).

A Regional Call to Action

“Innovation is one of the key drivers for growth and resilience in the Caribbean,” noted Anton Edmunds, IDB General Manager for the Caribbean. “By addressing the barriers businesses face, we can unlock greater opportunities for sustainable development and competitiveness.”

Future Outlook and Continued Research

The IDB's Caribbean Economics Quarterly publication series continues to provide valuable insights into the region’s economic landscape, offering actionable recommendations for policymakers, academia, and businesses. As the Caribbean navigates its post-pandemic recovery, fostering innovation will remain central to achieving inclusive and sustainable economic growth.

With improved policies and collaborative efforts, the Caribbean has the potential to emerge as a hub for digital and green innovation, driving progress across the region and beyond.