Tuesday, November 07, 2006

An environment encouraging success

Each time I go to the United States (US), I always wonder, as many Jamaicans do, why it is that Jamaicans go overseas and become very successful, but find it so difficult to do the same here. It is as if we are deliberately holding back the potential that would give this country the opportunity to grow at enviable rates.

The infrastructural support and assistance provided to US citizens is done with one thing in mind; to encourage development and success. On the contrary the way Jamaica operates is that we put every stumbling block in the way of persons trying to move forward. Is it any wonder then that we find ourselves in an economic quandary, where per capita income is a mere US$4,500 compared to countries such as the US at US$41,600, Trinidad at US$16,800, Barbados at US$17,300, Singapore at US$28,600, and Ireland at US$41,100. This of course is no surprise as education and income is directly linked, and while we are struggling with a literacy rate of under 80% these countries have rates in excess of 95%.

Is it any wonder that we find in excess of US$1 billion invested by Jamaicans in other countries, as stated by the World Investment Report (WIR), when so much more development is needed at home? Is it any wonder that Trinidad receives more Foreign Direct Investments (FDI) than we do?

Neglected infrastructure
The truth is that we have neglected to provide an attractive infrastructure, both in terms of capital development and human resource skill levels to woo much more investments into the country. Over the past two to three years we have been celebrating the fact that FDIs have been significantly up. This, however, is primarily because we have been benefiting from the global explosion in FDI flows over the past two to three years also. The WIR shows, however, that the flows to developing countries, such as Jamaica, have been slowing and is expected to reduce even further. We can therefore expect that the levels of FDI we have been experiencing may fall over the next one to three years.

My view, however, is that it is better to grow organically, that is from locals investing, rather than rely on FDI. And we certainly have the capacity to do so with some support. Whether investments are from foreign companies or locals, however, it is still necessary that we develop an infrastructure and processes that will assist them to be successful rather than feel as if one is fighting a losing battle, because as you push the cart up hill you feel as if the system is pushing against you.

Now that we have finally started to reduce interest rates and tackle the crime problem “intelligently”, we need to now go one step further. We need to ensure that the environment in which people have to invest, work and live in is geared towards assisting them to succeed rather than fail. It is not enough for us to be satisfied with growth rates of 2% to 3% when we have the potential to grow at faster rates if the proper investment in our people and infrastructure is made.

I have always said that one can determine the state of a country’s environment just by driving on the roads. In the US there are strict laws against speeding and many police on the roads to ensure that one adheres to the speed limit; there are many signs on the road that tell you of the various exits and destinations; there are many pedestrian tools on the roads; there are school speed zones, where if you go over the prescribed 15 miles per hour you could end up in serious trouble; the lanes are clearly marked with directional signs; and motorists respect the rules relating to traffic signs.

In Jamaica on the other hand, the police will generally only stop someone speeding if they deliberately set up a speed trap, and sometimes they will ask if you are going “write” or “lef”; the instructive road signs are few are far between; even when there are pedestrian tools, which are far from adequate, the pedestrian better give way to the driver; school speed zone – what’s that; the only thing that the lanes are clearly marked with are potholes; and motorists try to beat rules relating to traffic signs.

This comparison is symptomatic of the way in which we have set up our environment for people to succeed. So because we have made it so difficult we end up with a comparatively low literacy rate and run down infrastructure. The WIR states that the new FDI trend is being driven by R&D investments. Countries that attract R&D investments have a well developed infrastructure and educated work force. If this is the new trend in FDI then where does that leave us with our low literacy rate and less than adequate capital spend. The fact is that we may see short term financial benefits from spending less than budgeted capital expenditure, but what is the long term effect, if this is the global trend.

Misinterpreting debt
The focus a balanced budget has led us to believe that the be all and end all of financial management is to come out with a short-term positive financial position. Just as companies focusing on short-term profits may find itself in difficulty over the long run, so it is the same for a country. I have always said that the real problem with debt is not the level in relation to GDP, but rather what is the return in relation to the cost. If the return on debt far exceeds the cost then there is nothing wrong with it. In theory it is efficient to acquire as much debt as possible to the point where the marginal return is equal to the marginal cost. The problem with our debt is that we have, and continue to, use it primarily for consumption purposes. Therefore the marginal return has been below our marginal cost for a long time. This is the reason why we find ourselves spending so much of our earned dollar to service debt. If on the other hand the marginal return on our debt was still greater than the cost then we would not be faced with spending so much of our revenue on debt servicing.

If instead we had used the almost J$900 billion debt to focus primarily on capital development we would find that we would have been in a much better position to (1) attract investments; and (2) see greater returns for each investment dollar spend. For example, if we were truly focused on infrastructural development then we would not have the situation, as reported in the Gleaner, where cruise ships have to be turned back because of inadequate ports, thus resulting in much needed lost revenue. We would not have to contract overseas companies to build highways and in turn charge Jamaicans, resulting in increased transportation charges, and possibly net remittances outside of Jamaica through repatriation.

If we are truly to benefit from exceptional levels of economic growth then we must do everything to create the environment for investment. Of necessity we must focus on developing our infrastructural support for investments to take place, which means improving our distribution networks, not shutting down our only inland airport in Kingston. We must focus on improving our skill level, not just isolating the children better able to deal with GSAT pressures from the rest of the pack. We must make our roads a more disciplined environment. We must make it easy for small businesses to grow, not pressure them with coping with an inefficient tax system.

In short we must provide the infrastructure for people to want to do business and live in Jamaica. If not then we will always be looking for (1) FDIs rather than having the real development of home grown world class organizations; and (2) being satisfied with aneamic growth rates in relation to the global environment.

E-mail: dra_chung@hotmail.com

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