Thursday, September 13, 2007

Setting priorities for development

After the election and all that has been happening I was thinking of not writing this week until I saw the story in last Wednesday’s Observer titled “Foreign firms repatriate $13b in profits in 4 months”. This should not be surprising as this is what foreign companies do. Would we really expect that overseas companies would make an investment in a foreign country and not want to take back some of the profits to recover their initial investments and accumulate more capital for expansion.

I have always said, and still maintain, that organic growth is significantly better for Jamaica than foreign investments. While foreign investments are important, especially within the context of a developing economy, it is even more important to develop the local entrepreneur. In this regard this is the reason why I have always said that setting the appropriate business environment and incentives for locally grown entrepreneurs is critical. This is also the reason why I say that FINSAC was the single greatest blow to the economy. But all of that is now behind us and we must be careful not to make the same mistakes we did in the past. In other words when we fall it teaches us how to not fall again.

Importance of organic growth
The importance of organically grown entrepreneurs is no where better represented than in the US today. For months we have seen signs of the US economy weakening but the companies have been doing well. The reason for this is because these organic companies extended their reach by investing in the booming economies of Europe and Asia. So when the local (US) operations were showing a downturn in profitability, the overseas branches were saving the day with increased profits. The recent downturn in the US economy and fear of recession occurred after the subprime mortgage problem found its way into the European and Asian economies and naturally affected the same overseas operations that were saving the US companies. The result is that recession is an increasing possibility.

This subprime situation will no doubt have repercussions for Jamaica, and in fact I think has already started to affect the Caribbean region. It is going to be important that going forward we pursue policies that will not only shield us from the effects of a possible recession in the US but that will also put us on a path of strong growth, and this means getting our priorities right. It also means ensuring that there is a direct correlation between our spending and implementation of policies with the returns from those. In short we do not have the luxury of spending now for long term returns and must ensure that we do the things that will provide immediate returns, so that there is some benefit while the funds are being spent.

My approach to doing this would be first to look at the current status of our cash and fiscal positions. This to ensure that the business of government can continue in the short term, while determining what the plan is for moving forward. After all we have a new government and it would be wise to first of all understand what the current finances are and if the budget still holds true. Apart from the other administrative things that will need to be done I would immediately set about putting in place a medium and long term plan to chart out the growth path. And this does not mean just setting targets but make a deliberate determination about what are the obstacles to economic growth and what is the best way to go about implementing that plan given the financial constraints that face the country. While doing this it is important to bear in mind the social side also so that the social programmes do not suffer from any financial considerations. The task is going to be extremely challenging but can be done.

Determining the priorities
Much has been said about bureaucracy, crime, justice, tax reform etc. The truth is however that while we recognize that these are critical factors that must be addressed in general it is not easy to do so. While those are general areas of concern it is going to be very important to sit down now and determine what the specific issues are and develop a task list that can address each of these inn detail. And importantly in the order that will give the greatest value.

In other words while I may agree that bureaucracy and tax reform are important factors it will be important to do the following:
- Determine what level of growth and other targets you want to achieve. Set goals;
- Through various channels make a determination of what the main obstacles are to these targets e.g. if I want to achieve growth of 4% then what are the prohibiting factors. I still believe we do not currently have the capacity to grow in excess of 3% consistently and that needs to be addressed;
- Detail the issues within each of those prohibitive factors that need to be addressed individually, getting it down to a task list;
- Determine what the cost, return, and payback period is for each of those initiatives that need to be undertaken. It is important to note the dependencies between these tasks, as there are many that will not be able to be implemented on their own. So the cost and return of a dependent task includes the other dependencies. Dependencies would include programmes at other ministries and the national level also;
- Set out the costs and timeline for implementation; and
- Put in place a tool for measuring the outturn against the projections. Plans must be in place for alternate action if the projected returns/outcome do not materialize and that may mean something was wrong in the initial assumptions or some change has taken place.

That briefly would be a simplistic overview of an approach to achieving what is needed to achieve the desired objectives. Although the list looks simple it is by no means an easy task and will require careful planning to ensure that the assumptions are correct and that the plan is credible. Inherent in this though is the need to set out the correct priorities for development as resources are limited.

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