Economy

Positive Vibration

In January 2018, Jamaica received a tsunami alert following a serious tremor between Honduras and the Cayman Islands. Such risks can only be mitigated to a degree. To look beyond […]

In January 2018, Jamaica received a tsunami alert following a serious tremor between Honduras and the Cayman Islands. Such risks can only be mitigated to a degree. To look beyond the horizon, the island economy has committed to its first long-term strategic plan, Vision 2030 Jamaica, one of structural reform and economic diversification. Notably, the World Bank has ranked Jamaica third in the Latin America and Caribbean region for reform implementation over the past decade and a half, having chalked up 25 reforms, behind Mexico and Colombia respectively with 26 and 34. The vision comprises the Integrated National Development Plan, encompassing 31 sector plans, and the Medium Term Socio-Economic Policy Framework (MTF), a three-yearly plan crystallizing national priorities over each three-year period from FY2009/2010 to FY2029/2030. The third component implements those 31 sector plans across economic, social, environmental, and public sectors. Meanwhile, implementation progress is assessed by the Prime Ministry-appointed Economic Growth Council.

A bird’s eye view…

…of selected data prints reveals that foreign exchange is notably derived from tourism and remittances, at 15% of GDP apiece. Western Union has promoted the transfer of remittances directly to bank accounts. Its cash-to-account service launched in 2016 with five recipient nations—the US, the UK, India, Japan, and China —today encompasses over 50.

Exports, at approximately USD1.195 billion in 2016, notably comprised alumina, bauxite, sugar, rum, coffee, yams, beverages, chemicals, apparel, and mineral fuels. The top-five destinations in 2016 were the US (40.8%), Canada (11.9%), the Netherlands (10.2%), Russia (5.8%), and the UK (4.1%). 2016 imports of USD4.169 billion comprised food and consumer goods, as well as industrial supplies, fuel, components of capital goods, machinery and transport equipment, and construction materials. The five leading source nations were the US (39%), Trinidad and Tobago (7.2%), China (6.4%), Japan (6.2%), and Mexico (4.1%).

New Standby Means…

The government committed to a fresh three-year IMF standby arrangement in November 2016 to meet the cost of reforms necessary to realize Vision 2030. That year the nation printed GDP growth of 1.6%. In January 2018, Focus Economics forecast economic growth of 2% for the year, and 2.3% in 2019. The vision is ultimately a roadmap for the post-IMF era and must therefore deliver on its tougher requirements.

…Trimming The State

Two IMF visits by Christine Lagarde in 2016 and 2017 insisted that the state apparatus be shrunk to spur competitiveness, with privatization options to be considered. Jamaica has been blighted by average annual growth prints below 1% for more than 20 years. Yet during that time public debt burden has been bloated by government bailouts, prominently to the financial sector. Jamaica’s public debt was at a marked 115% of GDP in 2017. A recent USD160 million American Development Bank loan was extended to continue this trend reversal. The Stand-By Agreement stipulates that Jamaica generate an annual primary surplus of 7%, easing its debt burden to under 60% by 2025. Meeting the targeted 7% will not only demand state-sector downsizing, but also increased tax generation, where the government has with proven success opted for the simpler route of indirect taxation; all will need to be fueled by economic growth. Achievement of such a surplus will, again, reduce Jamaica’s dependence on the multinational community. That being said, for now, the IMF and World Bank continue to shine a useful light on the economy’s weak points.
Addressing Inequality
Never an easy undertaking, not to mention political kryptonite, public sector rationalization has recently seen Jamaica’s nurses union stage industrial action. Jamaica’s GINI co-efficient points to stubborn inequality, reaching 0.5 in 2013. Tangible improvement of social imbalances speaks louder than hopes of macroeconomic advances trickling down over time. The burden of consumer inflation in Jamaica averaged at 9.41% from 2002 to 2017, where it printed at 5.2%, and is forecast at around 4.6% by 4Q2018, and printing at 4.2% by 2020. History, too, reveals the price of international arrangements, as the 1994 NAFTA agreement applied the brakes sharply to Jamaica’s garment industry.
Vision 2030 aims for sustainable growth capable of reducing unemployment from the current approximate 12% level; the Ministry of Economic Growth and Job Creation was created to achieve this. Yet youth unemployment remains troubling. Official data as of April 2017 puts unemployment at 12.2% and at 26.2% for citizens aged 20-24.

BPO The Way to Go

At over 70% of GDP, the local economy leans heavily toward services. Business process outsourcing (BPO), which generates around USD400 million annually for the local economy, has huge potential contingent upon professional development. At the citizen level, as of mid-2016 just 45% of the population had internet access. BPO’s potential was arguably foretold by the 11.7% of total FDI destined for the ICT sector in the 2001-2007 period, which followed in the wake of telecommunications industry liberalization in 1999. In fact, over the past decade, the BPO sector, which currently employs over 22,000 people, has seen the highest employment growth rate of any sector to become the largest employer. This has identified it as the key driver of economic growth, and the government targets 100,000 related jobs within five years.

Investor Appeal?

With the private sector in a pivotal role regarding economic policy realization, national competitiveness is key. Yet certain supply-side bottlenecks have curbed SME access to affordable credit. A slender 11% of adults and 27% of SMEs receive credit from a regulated financial institution. The consequent economic burden of insufficient commercial opportunity and the pervasive unregistered economy is being addressed by the National Financial Inclusion Strategy (NFIS), in step with Vision 2030.
The Business Process Industry Association of Jamaica (BPIAJ), the voice today of over 40 firms, has appealed for greater assurances that Jamaica’s new special economic zone (SEZ) regulations be conducive to sector competitiveness in terms of regulation and taxation. The belief is that would-be foreign entrants to Jamaica are wary of prohibitive conditions, now that the SEZ Act, passed in January 2016, repealed the Jamaica Export Free Zone Act, with new provisions for tax and customs incentives for eligible firms.

In the Rankings

In November 2017 the nation was revealed to have slipped three places to number 70 in the World Bank Doing Business Report 2018. The World Bank itself urged swift reform of the process of obtaining construction permits, as well as the registering of properties and the enforcing of contracts to boost investor confidence. Yet, on the plus ledger of the World Bank report, Jamaica shines globally in terms of starting a business, ranking at number five, not least as a new firm can today be registered in just three days, down from 31 days in 2002. The World Bank also confirmed that the nation was on the right path for frontier ranking as measured by its pursuit of global best practices in business regulations, also registering progress in efforts to ensure efficient energy distribution through smart metering in Kingston. The nation’s score in the Distance to Frontier rose to 67.27 points from 66.70 points previously. This ranking may usefully be compared to the region’s best performers Mexico at 49, Peru at 58, and Colombia at 59.
Jamaica, then, is past its chronic vulnerability to a poorly regulated financial sector, which collapsing in the mid-1990s was shouldered by the state. Its Vision 2030, if successful, will have forged an economy that can step out of the shadow of international institutional sponsorship.

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