Friday, March 23, 2007

Cricket, aeroplanes, and poverty

A recent article in Forbes magazine looked at what some of the world’s billionaires drive. Of course at the top of the list were Bill Gates and Warren Buffett. Gates drives a 1999 Porsche 911 and a 1988 Porsche 959 coupe. Buffett drives a 2001 Lincoln Town car with the words THRIFTY on the licence plate. The magazine also states that the trend noticed is that billionaires tend to not focus on material possessions such as cars, which depreciate, but rather tend to put their resources and efforts into their businesses.

Recently I was having a discussion with a well known Jamaican, who commented that while working in Trinidad in the 1980s, it was very obvious to him that instead of buying fancy cars and houses, as Jamaicans do, what they did was to retool their factories and spend most of their money on modernizing the businesses. Well they became the manufacturers for CARICOM and we had FINSAC. This is not to justify the manner with which a Trinidadian, recently being interviewed by Cliff Hughes, pompously stated that the agreement to supply LNG to Jamaica was a MOU and therefore not binding on either party. What happened to the word of a government? Doesn’t that mean anything anymore? I am sure that this is not the sentiment of the Prime Minister, and people like that should be banned from speaking for fear of reversing our CARICOM efforts.

Resource usage
These two accounts bring to the forefront the relationship between cricket, airplanes, and poverty, in the Jamaican context. They all compete for the same resources. Of course in true Jamaican style, cricket and airplanes (Air Jamaica) get the lion’s share, while poverty continues to increase because it is deprived of resources as a result of cricket and airplanes. I can say this for the politicians, that are afraid to because it might cost them votes, as no one is going to vote for me.

On the day of the opening ceremony, at the expensive Trelawny multi-purpose stadium, TVJ covered this magnificent affair, with all the Jamaicans present enjoying themselves immensely. In true Jamaican style we showed the world that we know how to party. Two stories later I saw an elderly teary eyed lady saying that she fell down carrying water in a bucket to her home, because there was no running water. Still another report showed a man saying that his car had been damaged by the police whom he had to lend to chase thieves on many occasions, as they had no vehicle, and he was having difficulty being compensated.

Now this is the same country where we spend J$9 billion to host world cup cricket, and maybe about JS$2 – J$3 billion on the Trelawny stadium. This is the same country that has a national airline that lost US$153 million (J$10 billion) in 2006, and US$120 million (J$8 billion) in 2005. This is the same country that runs a sugar company that loses hundreds of millions each year. As the celebrated IMF report states in paragraph 14 “…the data indicate that the deficit of the JUTC exceeded planned amounts by three-folds; that of the Sugar company exceeded planned amounts by almost seven-fold; and that of Air Jamaica has been more than double the expected amount. Altogether, the excesses of these three enterprises amount to almost 1 percent of GDP this year.”

In addition to all these losses we spend J$ billions on a stadium to host an opening ceremony and some warm up matches, and may have some positive revenue impact in the future. In the present though, the old lady can continue to carry the water, and fall down while doing it, because the money has to be spent on cricket, airplanes, and sugar to sweeten the hardship. Although she will have made sacrifices for these expenditures to have taken place, and for some Jamaicans to have enjoyed the ceremony, more than likely she will not live to see the benefits of the expenditures, if any of us will.

Needless to say, when I saw the newscast I was more than hurt by the disregard we have for the less fortunate in this country. And those who suffer the most will not be able to enjoy the cricket, because at US$80 per ticket it will not be possible to buy water and go to the cricket match also. And even if they could afford to then they might not be able to get a bath in time to attend.

Development is key
If we as a country are serious about development then we have to make better choices. We cannot continue to spend money needlessly on events that do not add long term value. Not in the position we are in. I am not saying that we should not have hosted the opening ceremony and the cricket matches, but why not spend J$1.5 billion or J$2 billion less and fix up the national stadium for the opening ceremony. Still have the expenditure on Sabina and the physical infrastructure but seek to spend the money more wisely. If we had taken that approach and spent J$1.5 billion less, would it have negatively impacted the benefits. I think not.

With respect to Air Jamaica, this thing seems like an ever expanding black hole. Even if we consider the MIT report, which says that the net benefit of Air Jamaica is over J$5 billion per annum, which I doubt very much, the present losses seem to be eating away at that net benefit. I also have no doubt that Air Jamaica is losing passengers, as if you want to get to your destination on time, Air Jamaica is not the likely choice. If we cannot contain the losses, and turn a profit by 2009, as called for in the business plan, I will agree with the IMF, shut it down. We cannot continue to spend J$10 billion per year to support an airline that has borrowed the crutches from the Jamaican dollar.

We must face the fact that our resources are very scarce, and we need to be very wary of what we spend it on and how. It is only by spending on things that will provide value in excess of the spend that we will get out of the situation we are in and achieve development. Growth is not difficult to get, or at least should not be, it is development that is a challenge and what we must focus on. In 2007 we should not have an old lady carrying water from the river because there is no piped water. We should not have the police having to borrow a private car to provide security. A duty free car for the police is just over J$1 million. A fraction of J$2 billion could have provided the cars we need to fight crime.

So at the end of cricket and the losses of Air Jamaica, my question is what is the benefit we expect to gain. Will we have a more educated work force? Will crime be reduced? Will we be able to save our tourist capital from the jaws of crime? Will our youth have more employment opportunities because they have acquired a skill? Will the old lady have piped water and the police get the vehicles they need because of the revenue flows generated. We don’t need the benefits ten years from now, we need it now.

It is not good enough that we will benefit from whatever monies we spend. The timing is important. If someone develops a product that is useful for the next generation then it means that his business will fail, if he has no other product or service. The lesson is that when we spend monies, we must be careful to ensure not only that the benefits are forthcoming but that it happens in a timely manner. Because at the end of the celebrations, while the money is being spent, then there comes reality, when it has to be paid back.

17 comments:

Anonymous said...

The critical thing that encouraged the TnT manufaturers to re-invest was the tax break granted for that specific purpose by the George Chambers government of 1981-1986. Chambers was vilified by Calypsonians among others as "Duncie" as he never went to secondary school but he knew what he did not know and listened to his technocrats.

The tax break was available to any manufacturer who wanted to apply and who was willing to comply with the requirements which were similar to those imposed on Hoteliers who want duty-free benefits. The fundamental point is that it was available to everyone and not only to specially selected entities.

That sole action was the basis of the TnT manufacturers re-investment decisions and along with energy prices is partly responsible for their dominance of Caricom trade.

The other point is that aside from Gracekennedy and Butch Stewart, since the formation of Caricom I have not noticed any major Jamaican firms investing in the Eastern Caribbean. The Matalons had an unfortunate experience with housing in TnT in the early '80s but apart from those instances I have not seen any activity.

I am certain that there are individuals and firms with the wherewithal to gain major market share in the region. It could be something like purchasing small manufacturers in TnT and building from there.

On the other hand, Producers Group could find a ready supply of agricultural products for their London operations from either the EC or from Guyana. Another example lies in the recent announcement of the purchase of majority control of the Belize Citrus company (I don't remember the name) by a partnership made up of two (2) companies, one (1) from TnT and the other from Barbados.

Seprod is manufacturing based and the majority owner is Barbadian (I think). Ask him why he never invested in the Eastern Caribbean or TnT. I have never seen his products down here and I have travelled quite a bit.

Anonymous said...

Dennis,
Completely unrelated to your current piece,I would like to hear/read your views on the substantial rise in real estate prices.

My view is that the astronomical rise in the prices has to do with the increase in benefits offered by the NHT.

This has encouraged real estate agents, etc, to be now engaging in an act of market manipulation and PRICE GOUGING.

That's right, PRICE GOUGING! And no doubt the rippling effect is going to inflation and her related "cousins".

But the question is how do we correct this situation. And that is what I would like to hear you on. If you have done so before, please direct me to that material.

I personally think that there should be probably a limit, as to who gets a benefit from the NHT, based on their income. I mean the more you earn the less your benefit from the NHT will be! That is one view I have, which I have not thought out completely, admittedly! So if there are fundamental flaws please let me know.
Another potential method is to dramatically increase the stock of NHT housing and maintaining the prices at pre- increase in benefits levels. The competition with real estate copnaies is not something a government owned company like the NHT should be engaging in. They exist to, on the contrary,do the opposite. To maintain prices at levels that "ordinary" people can afford - to balance the market so to speak.

Or, increase in cooperative housing through the NHT, similar to the ones that exists in Canada, US, and Europe. Where tenants are charged based on their income.
Probabaly similar to the state housing done in South St Andrew.

But the current ripping off cannot persists. The rich getting richer, without lifting a straw, and worst of all not from increased productivity!!!!

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