Sugar production dominated the economy of Antigua and Barbuda for centuries. Sugar declined in importance after World War II and by the early 1970s it was almost irrelevant to the economy. Thereafter, islanders have dabbled in a variety of agricultural activities, but with limited rainfall there was not much success. Tourism therefore emerged as the major economic activity and, except for the ravages of hurricanes, this sector has experienced steady growth.
The economy is based on an open and free enterprise system. Since the mid-1980s there has been an upsurge of huge trade deficits , however, which have led to arrears in payments to foreign investors, which in turn reduced foreign capital inflows. In the first half of the 1990s economic growth slowed sharply (from an average of 8 percent in 1984-89 to 2 percent in 1990-95), mainly because the large public investment in tourism-related projects started in the 1980s could not be sustained.
In the late 1990s the growing offshore financial sector came under scrutiny from some European countries. The sector was affected in 1999 when the United States and United Kingdom applied sanctions on the government in an effort to compel more stringent controls on money laundering . Yet Antigua and Barbuda was not named in 2000 among the so-called "non-co-operative tax havens " by the Paris-based Organization for Economic Co-Operation and Development (OECD), a 29-nation grouping of some of the world's wealthiest nations.
As the 21st century opened, tourism continued to be the mainstay of the economy, accounting for over 40 percent of GDP. Recovery in the tourism sector has resulted from rehabilitation efforts and new marketing strategies. There have also been some recent attempts to strengthen the manufacturing sector.
Overall economic growth for 1998 was 3.9 percent, and expanded to about 4.6 percent in 1999. Inflation has been moderate, averaging 3 to 4 percent annually, since 1993. It is apparent that economic growth in the medium-term will be tied to income growth in the industrialized regions, particularly the United States and the United Kingdom, where most tourists originate.
Antigua and Barbuda's external debt continues to grow, increasing from US$357 million in 1998 to US$433.7 million in 1999. The large debt has had a negative effect on the economy because these loans must be repaid in a short period at very high interest rates. Debt payment accounted for 21.52 percent of the country's 2000 budget. Economic aid averages around US$2 million annually.
While most firms in Antigua and Barbuda are locally owned, overseas companies own most of the hotels. Among the largest companies are Cable and Wireless Antigua Ltd., the state-owned Antigua Public Utilities Authority (APUA), and the Antigua Brewery, which is 80 percent foreign-owned. The state-owned Central Marketing Authority regulates the importation and distribution of basic food items. There are a good number of reputable International Business Companies (IBCs) registered in Antigua, including international banks, trusts, insurance firms, and corporations.
To foster industrial development, the government has adopted a policy of providing local and foreign investors with incentives such as duty -free imports, tax holidays , and other exemptions. A recent government initiative is the establishment of a " Free Trade Zone ."