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In a few years, Jamaica can attract and retain Foreign Direct Investments (FDI) of US$2 billion a year and enjoy growth rates of over five per cent, Minister without Portfolio in the Ministry of Finance and the Public Service, Senator Don Wehby, has said.
Addressing the National Commercial Bank (NCB) Round Table, at the Hilton Hotel in Kingston on October 22, the Minister said for this to become a reality, the Government’s responsibility must be to ensure the following:. A sound, predictable macro-economic policy framework that maintains low inflation, a stable exchange rate and competitive interest rates;. A tax system that is simple and competitive; . A modernised labour market geared towards high levels of productivity; . A simplified, business-friendly bureaucracy; . Effective measures to prevent corruption and fight crime; and . A supportive infrastructure.
He pointed out that in order to ensure that the rich talent that Jamaica possesses and its status as a world leader in music production, is converted to Foreign Direct Investments (FDI), efforts should be made to attract investors to set up recording studios in the country.
He noted that despite Jamaica’s wealth of talent and natural resources, it is lagging behind many of its Caribbean competitors, and its economy continues to under perform.
“Trinidad’s GDP over the last five years has grown at an average of 9.7 per cent; Barbados at 3.6 and Jamaica at just over one per cent. One of the main issues that negatively impacts the Jamaican economy is the issue of debt,” the Minister said.
He further observed that an alarming statistic that has long been an impediment to productivity is the fact that 73 per cent of employed persons have never had any formal training. He added that 68 per cent of employed persons have not passed any examinations at the CXC level or above.
The Minister suggested that if Jamaica is to have a healthy economy, the country must invest in health care and national security. “We have to grow and protect our human capital, but it is impossible to implement all the good ideas coming out of both the private and public sector, if 64 cents in every dollar has to go to the debt purse. This places us in a vicious cycle, because the only way to finance a fiscal deficit is to continue borrowing. That is the primary problem we are having in Jamaica, and the real solution to solving our debt problem, is to grow the economy, full stop,” Senator Wehby argued.
Emphasising the importance of FDI to Jamaica’s growth prospects, the Minister drew reference from the latest issue of the World Investment Report. The Report states that “FDI across the globe rose by 30 per cent in 2007. While the lion’s share of this increase went to Asia, about a quarter of it went to Latin America and the Caribbean. As far as the Caribbean is concerned, Trinidad & Tobago enjoyed the highest inflows, bringing in just over US$1 billion. This was due to the historic prices for oil and natural gas, two commodities Trinidad has an abundance of.”
He noted that Jamaica, on the other hand, attracted US$866 million concentrated in the mining, tourism and information technology (IT) sectors. “Mining was the leader here, bringing in US$217 million, followed by tourism, with US$179 million, then came IT with US$164 million in FDI flows. These levels of investments coming into the country inevitably lead to an increase in employment,” he said.
The former GraceKennedy Executive said that according to the Planning Institute of Jamaica (PIOJ), some 80 per cent of the input going into the numerous hotels in Jamaica, is imported. This, he observed, did not lead to a trickle-down effect into the wider local economy.
“Can you imagine the impact if we had a master plan in terms of reducing that 80 per cent to, let us say, 50 per cent as far as creating employment in Jamaica and increasing our growth rate?” the Minister said.
With respect to the impact of telecommunications on FDI flows into Jamaica, he cited Michael Lee Chin’s Flow, which has already invested over US$200 million in Jamaica; and Digicel.
“Digicel has really been a true success story in the Jamaican economy. I call it the stealth strategy, coming in under the radar and doing a fantastic job. Investing in telecommunications is more than just the capital that is put in, because what it does is open up Jamaica to the world. It helps to give Jamaica a competitive advantage and is the backbone in expanding into other industries,” the Minister said.
Looking to the future of FDI in Jamaica, Senator Wehby envisions a bright one, despite the financial crisis taking hold across the world. He observed that out of 134 countries, Jamaica is ranked 60 for the quality of the country’s roads; 32 for the quality of the ports and 41 for airport infrastructure. According to the World Bank’s ‘Ease for Doing Business Survey 2007’, Jamaica is ranked 63 in the world, 11 for ease of starting a business, and 32 for hiring workers.
“These developments give us a huge regional advantage, along with our sophisticated telecommunications sector and vibrant financial services offerings. While we are better than many countries, as a Government, perhaps we should set targets that see those numbers moving downwards. You can never be too comfortable with where you are,” he said.
He expects that with the establishment of the country as an international financial services centre and the implementation of the Economic Partnership Agreement (EPA), giving Jamaica access to a market of 490 million people in Europe, with GDP and per capita income of US$13 trillion and US$30,000, respectively, that Jamaica will be positioned to receive additional FDI flows in finance.
“When you think of it, we have this free trade agreement with Europe, which presents a great opportunity to invite their companies to come and invest in Jamaica by setting up plants, so that that they can export back to your homeland, because I am certainly sure that the cost of labour in Jamaica is relatively cheap, when compared with Europe. We need to really study the EPA, pull it apart and see where there are opportunities for our private sector,” the Minister said.
Canada and China are two countries that Senator Wehby believes will be rich sources of FDIs to Jamaica. As an example, he pointed to the Chinese group which has recently expressed an interest in acquiring Air Jamaica.
Using Ireland as an example of a development model worthy of emulation, the Minister said that country overcame huge deficits, high debt and a similar situation to Jamaica’s. He recalled a recent exchange with that country’s Minister of Finance. “I said to their Minister of Finance: ‘Tell me three things you did that made the difference.’ He said ‘Don, investment in education was critical’,” Senator Wehby said.
“With large FDIs coming in, you need to have an educated workforce to service these companies. Secondly, they simplified their tax system. The corporate tax rate moved from 35 per cent to about 12.5 per cent. This helped to attract FDI. Thirdly, they put together a fantastic team comprising ambassadors of business, where their best and brightest would go to the world’s best blue chip companies and say, ‘Ireland is open for business, what do you require?’ They didn’t send out a second-rate team, they sent out the best that they had. When you look at Ireland’s growth, 60 per cent of it is due to FDI flows,” the Minister said.
Senator Wehby suggested that Jamaica looks at the Irish model as a guide to economic development.