JIS News

It is quite common to hear the man in the street lament that, “nuthin’ nah gwaan” in Jamaica, but Director of the Economic, Planning and Research Division of the Planning Institute of Jamaica (PIOJ), Dr. Peter John Gordon points out that there are various signs of growth and improvement in the economy with the opening up of new opportunities through the liberalisation of the telecommunications sector, the construction of Highway 2000 and expansion in the tourism sector, among other things.
In an interview with JIS News, Dr. Gordon says the country is now reaping some of the fruits of government policies, which have been implemented over the years. “The government has been undergoing a set of reforms for quite a period and we are now starting to feel the effects of those economic reforms. This has opened up all kinds of new opportunities,” he says.
Citing positive developments in the telecommunications sector, Dr. Gordon points out that, “with the removal of the monopoly and the entrance of new players, you can see the impact. Remember what it was like 10 or 15 years ago when you applied for a phone versus now? Now you can basically walk into a store and walk out with telephone service”.
He notes further that transaction costs have been significantly reduced as persons can communicate, conduct business, and make arrangements from one location. This option, he notes, has not only positively impacted large companies, but also, the average person.
“People are now more connected. What the telecommunications revolution has done is to reduce transaction costs. People no longer have to leave work to check if their children have reached home.
They are now able to refocus their mind on work, having satisfied themselves that their domestic affairs are in order, without having to jump into their cars to drive home and check”. This measure, he says, has helped to increase productivity.
As at 2004, a total of 2.1 million telephone lines have been established, inclusive of 423,000 landlines and 1.6 million mobile lines. Investments in the sector totalled US$700 million with revenue generated in excess of $60 billion.
In addition, the 2004/05 Global Information Technology Report has ranked Jamaica 49th out of 106 countries in networked readiness. This report, which uses data collected by the World Bank and the International Telecommunication Union (ITU), placed Jamaica first in the Caribbean and fifth in the western hemisphere falling only behind the United States, Canada, Chile and Brazil.
Jamaica was also ranked 44th in information communication technology usage, 51st in regulatory environment, 43rd in individual usage and 54th in business usage.
E-GOVERNMENT
Turning to reforms in the government service, Dr. Gordon notes that the modernization of the Customs Department has helped to cut down the cost of doing business in Jamaica. “All of these things lead to making the business climate more profitable and therefore leads to expansion of economic activity,” he stated.
He mentions further, that the e-government system is making an impact, with more than 850 persons having registered to use the online system for government transactions since the facility was put in place in December 2004. The facility allows credit card holders to pay property tax, traffic tickets, betting and gaming tax, government consumption tax and special consumption tax online.
Approximately $5 million has been collected online between December 2004 and May 2005.
HIGHWAY 2000
The Director also makes note of the government’s persual of a massive infrastructure development programme, in the form of Highway 2000.
“All of these things help in enhancing the business climate. You no longer spend a lot of time in traffic. People are able to make decisions about where they live, different from decisions about where they work. This infrastructure will cause the cost of business to go down and this should lead to an expansion of business,” he stresses.
The multi-lane motorway, when completed, will connect Kingston in the south-east of Jamaica with the tourism centres of Montego Bay in the north-west and Ocho Rios on the north-central coast, covering 230 kilometres. The Transport and Works Ministry has reported that since the opening of Kingston to Bushy Park segment of the project last December, average daily usage of the highway has moved from 11,000 to 16,000 vehicles.
REFORM OF TAX REGIME
The reform of the taxation regime is another critical change that has helped to boost revenue collection, Dr. Gordon notes. In a recent interview with JIS News, Director General of Tax Administration, Clive Nicholas, said that the country had a significantly improved tax infrastructure making it more convenient for people to pay their taxes.
After an intense restructuring period in the mid 1990’s under the Tax Administration Reform Project (TAXARP), the revenue departments were overhauled to provide new and improved service to the public.
At the end of the reform process, new and restructured tax departments were established under the umbrella of the Jamaica Tax Administration.One of the main objectives of the reform project was to reorganize the tax departments according to functions, thus eliminating duplication of tasks. Prior to the streamlining of the tax system, Income Tax, General Consumption Tax, Stamp Duty and Transfer Tax Departments all had assessment and collection functions.
Change came on December 1, 1999 when all matters relating to assessment were assigned to the Tax Payer Audit and Assessment Department (TAAD) and collection duties were placed under the Inland Revenue Department (IRD).
BAUXITE INVESTMENTS
Meanwhile, government’s revision of the tax arrangement for the bauxite industry, including the provision of incentives, has resulted in massive investments in the sector.
In March 2004, Alcoa Inc., the world’s leading supplier of alumina, announced a US$690 million expansion project at the JAMALCo Refinery in Halse Hall, Clarendon, which would increase employment in that section of the island and bring the country an additional US$300 million per year in gross foreign exchange earnings.
The expansion, to be undertaken over the next three years, will result in an additional 1.4 million tonnes of alumina being produced annually, more than doubling the refinery’s total capacity to 2.65 million metric tonnes per year, and placing Jamalco among the world’s lowest production-cost refineries.
In 2003, Alcoa completed a 250,000 metric tonne expansion project at JAMALCo at a cost of US$115 million and the revised tax arrangements, along with the expansion, lowered costs at the refinery by approximately 30 per cent.
Addressing the issue of unemployment, Dr. Gordon said this is best dealt with by growth. “What we want is jobs, which are sustainable. An employer is really only going to employ someone if that person adds value to the operation,” he says.
However, the economist points out, firms, in trying to maximize their profits are constantly looking for ways to keep their costs down, which usually means minimizing human cost. “While they (companies) are looking to grow, they are hoping to do it with fewer persons per unit of output,” he notes.
From a policy standpoint, he continues, government was then faced with the challenge of trying to get the economy to grow at such a rapid rate that even when companies are not expanding the work force as much, overall unemployment will fall.
The answer to this dilemma may very well lie with the development of the small and micro business sectors as experience around the world has taught that these sectors tend to absorb the most labour. “Sometimes, when a factory closes and you see 200 or 300 persons laid off, it looks like a huge chunk, but when the small sector is expanding and each firm is taking on two or three persons, that doesn’t look significant, but it adds up very quickly,” Dr. Gordon informs.
SMALL BUSINESS DEVELOPMENT
The Jamaican government has intervened in a number of ways to support and expand this vital sector, he points out. “One area is through the Jamaica Business Development Centre. Their task really is to strengthen entrepreneurial and business development services for the small sector and they do this by facilitating technical assistance in capacity building. They have a network programme where they cluster small businesses so that they can learn from each other,” Dr. Gordon explains.
Dr. Gordon says the HEART Trust/ NTA programme is also a key player in the development of the small and micro business sectors as it is here that many persons are being equipped not just with technical skills for the work world, but are also being trained in entrepreneurship.
“In other words, they are not seeing all of their graduates coming out looking for a job. Some of these graduates will go into business and actually create jobs for other people. It’s a completely different mindset,” he says.
He makes note of a number of government facilities that direct credit to small and micro enterprises. These include the National Development Foundation, Development Options, the Export/ Import (EXIM) Bank, and Micro Investment Development Agency (MIDA).
There are also some private entities that have special funding windows for small businesses, such as Pan Caribbean, the National Commercial Bank, and Jamaica National Building Society. Funding is provided for the small agriculture sector through the PC banks.
Meanwhile, the Hazard Analysis and Critical Control Point (HACCP) programme carried out by the Bureau of Standards, helps businesses to operate at world standards. “Once small businesses participate in this and they meet these world standards, it then makes export activity that easier for them,” Dr. Gordon notes.
ECONOMIC GROWTH
Providing an overview of the country’s economic progress for specific years, Dr. Gordon said for 1997/1998 growth rates were negative and moved to one per cent in 1999/2000, followed by relatively small growth rates in the two following fiscal years. The two per cent growth rate, which was achieved in 2003/04 went below one per cent last year, Dr. Gordon informs, due to the impact of Hurricane Ivan.
“When you look at how we were performing for the calendar year, the growth rate was 1.2 per cent, but for the first six months, we were growing at the rate of 2.7 per cent, so we were on target to probably go over three per cent for last year and then the hurricane came and that changed the picture dramatically”.
Turning to the debt to Gross Domestic Product (GDP) ratio, Dr. Gordon explains that in 1994/95, the ratio was 99 per cent. It fell to 91 per cent in 1995/96, and then to 80 per cent in 1996/97. Then Dr. Gordon explains, the FINSAC debt was taken on board given the trouble in the financial sector at the time, “and that is what caused the debt to GDP ratio to get all the way up to 140 per cent”.
“So we were on a trajectory of reducing the debt to GDP ratio, then the financial sector meltdown occurred. That debt was not immediately absorbed on the government’s book, but came along later. That’s what pushed the debt to GDP ratio way up. We are now in the process of bringing it back down,” Dr. Gordon said. The debt to GDP ratio is currently at 136 per cent.
The senior economist believes the future looks good for Jamaica, with the country recording the highest amount of foreign investment for any given period last year. He notes the profits from telecommunications inflows with companies such as Digicel and Centennial setting up shop in the island.
NEW HOTELS
This is in addition to investments in tourism and the expected spin-offs in the sub-sectors. Substantial tourism investment plans by major chains, primarily from Spain will see the addition of as many as 10,000 rooms to the accommodation stock.
The establishment of first comer chain Riu has in fact seen the explosion of Spanish arrivals as Jamaica enhances its European Plan (EP) product. The Harmony Cove project is one of note, which is set to attract significant investments.
Ground was recently broken by Prime Minister P.J. Patterson for the project, which will be established on the scenic Harmony Hall property in Trelawny at a cost of US$1.1 billion, and create some 11,500 new jobs for residents in western Jamaica.
“There is a lot happening and I see no reason why it will not intensify. The thing about growth is that once its starts, it tends to feed on itself. The future looks very bright,” he states, noting that while there were challenges ahead, they could be overcome if the work force was properly prepared to provide the range and quality of services that would be required not just locally, but at the regional level as well with the advent of the CARICOM Single Market and Economy.
IMF AND WORLD BANK
Meanwhile, the International Monetary Fund (IMF) last week projected real GDP growth of up to four per cent for the Jamaican economy for the 2005/06 fiscal year, while also projecting a return to single-digit inflation and a decline in the debt-to-GDP ratio.
Hailing the Jamaican government’s decision to balance the budget in this fiscal year as a “landmark decision”, the Fund expressed the view that the goal “appears within reach”. The IMF, in a highly positive assessment of the Jamaican economy said “the authorities have succeeded for the second consecutive fiscal year in maintaining stability following the near-crisis in the first half of 2003”.
In the report titled, Jamaica: Interim Staff Report Under Intensified Surveillance, the IMF said that while global conditions had been very favourable, “the generally positive results of the last two years owe much to the renewed fiscal consolidation, reflected in the very high primary budget surpluses”.
It agreed with the government that the macroeconomic targets were achievable provided that the government maintained strict expenditure discipline and fully implemented the approved tax reform measures.
Early last year, the World Bank came out in support of the ‘Doing Business in 2004 Report’, which ranked Jamaica among the top 10 best countries for business. The five indicators that formed the basis of this report included starting a business; hiring and firing workers; enforcing contracts; getting credit and closing a business. Jamaica was amongst the top ten countries that regulated the least.
Development Minister, Dr. Paul Robertson quoted the report as saying, “among the least regulated economies, Jamaica has aggressively adopted best-practice regulations over the last two decades”. Further, Jamaica was among a small number of countries in the region, which experienced growth in Foreign Direct Investment (FDI) in 2003.
FDI FLOWS
As contained in the United Nations World Investment Report 2004, Latin America and Caribbean experienced a decline in FDI flows for the fourth consecutive year, with inflows falling by three per cent to $50 billion, the lowest since 1996. Jamaica however remained one of the few regional economies, which showed an overall growth in FDI flows over the last four years, in addition to an increase of inflows for the 2003 year period over 2002.
Jamaica has been ranked as the highest maximizing FDI destination in the Caribbean and came in 20th on a per capita basis in the world, as an FDI destination. During the past decade, the country has seen up to five or six times the increments of FDI. According to the Jamaica Promotions Corporation (JAMPRO) FDIs peaked at some US$720 million in 2003 the highest figure recorded in the country’s FDI history.