Friday, April 23, 2010

Value added focus

NOW that the budget debate is finished, our efforts must be focused on how to develop the country to achieve economic and social progress. Everyone had their say on the debates, most of which would have been influenced by political underpinnings, with persons espousing how great the presentation was by their political preference and not any objective assessment of what was presented.

One such person sent me a message to express disappointment in me saying that jobs were needed to move the economy forward. Instead, he said patience needs to be exercised to see the adjustment in the economy. In other words make the adjustments through painful measures that will result in job losses and people will respond by starting businesses because interest rates are falling and other adjustments are being done to create a facilitative environment. When I asked the question though of how he suggest we deal with the economy over the next six months and if he could specifically let me know how the adjustments will impact on the economy in precise terms, that question was ignored.

US government action
It seemed obvious to me, and the US government, that in order for the economy to grow that jobs need to be present. The US, for example, has a very facilitative environment for growth and business start-ups, but supposed they had ignored the declining job market and left it to spiral out of control, where would the world be today? Would Jamaica even be speaking about increased tourism or a return to bauxite if the US had allowed the job market to falter? Would there be any economic growth if disposable incomes from job losses had dwindled? I think not. But this is the myopic view expressed by many who do not understand that the economy is dynamic, and based more on confidence and expectations than macroeconomic data.

My own view is that the general direction of the budget and policies seem to be moving in the right direction. The focus on lower interest rates, a restructured debt cash flow, small businesses, tax reform, and generally an enabling environment is pointing in the right direction. This, of course, includes the commentary by the prime minister on the need for a radically reformed public bureaucracy and crime. This approach of changing the structural make-up of the economy is definitely a positive and must be encouraged, as for the first in a very long time it seems that we have properly set our sights on the direction we want to move in.

What we need to do now is bring that together into a set of specifically laid out plans with timelines attached as to when we will achieve what and where the accountabilities lie. In short what we must be doing is focus on developing a specific set of tasks to achieve a macro-objective. This macro-objective must be economic and social development (not just growth). Because of the long-running fiscal deficits we have had in this country, which has decimated our economic and social structure, we are understandably focused on the fiscal accounts as an objective. The fiscal accounts (and deficit) of course need to be a tool rather than the end of our journey, which seems to always be the main focus.

So we achieve a fiscal deficit of 6.5 per cent in 2010/11 and then what? The question is in achieving that fiscal deficit target, what will be the dislocation caused to the economy? How many persons will have lost or gained employment? What will have been the social impact of achieving the fiscal target? How many new businesses do we expect to start over the next year, as a result of the policy shifts being pursued and the stimulus being provided? How much activity do we expect to occur from the much-needed housing stimulus announced by the prime minister? What are the specific timelines for the well-needed public sector transformation being pursued?

Business interest
These are the questions which businesses need to know the answers to in order to move forward. So while we hear how great the presenters sounded -- who did not sound good, and who was being political and who not -- the question is do we have a clear picture of what our developmental plans are for the next 12 months and how the specific plans are to be achieved?' We have clearly identified the issues that need to be addressed, which was maybe best articulated in the prime minister's presentation. But at the end of the day apart from the "who done it" theme throughout the presentations do we have a clear indication of how the development plans will take shape? If the answer is yes and businesses can plan then we have had an excellent budget presentation irrespective of how the speakers sounded.

After reviewing all the speeches my own view is that the one which best identified our challenges and what needs to be fixed is the prime minister's presentation. This is the one that we can take away the most from in terms of what developmental objectives we should be focused on, as the other presentations were like a Sherlock Holmes mystery unsolved, focusing primarily on who did what, when, and where. Is that relevant in the crisis in which we find ourselves today? If it will put food on peoples' tables and money in their pockets then by all means go for it.

The prime minister's presentation discussed the main issues, but in my view he needed another hour to expand on what the specific action plans are in order to address the issues of focus. In my view, the housing stimulus through the NHT was a good move, as one of the primary sectors of growth is the construction industry and if we can get that sector revitalised along with the growth in agriculture then we will bring back much-needed economic vibrancy.

As I was saying to my friend in the message, however, we need to have some focus on creating new income (jobs) in order to ensure that the demand exists for the stimulus in order to maximise the economic benefits. As an example, before the housing stimulus could have worked in the US they had to ensure that the job losses were halted. Can you imagine if they had provided the housing stimulus with job losses increasing? The benefit would not have had the maximum impact, which is how we need to approach spending. Hence, we need to ensure that the maximum value is achieved from each expenditure or initiative.

In order to maximise the value added there are a few areas we must concentrate on. The fact is that money is tight for the for the government and the strategy must be to maximise the expenditure by focusing on the greatest value-added strategies, as we do not have, as the prime minister says, reserves available from the days of historic worldwide growth or the ability to borrow given the IMF programme we are on (which I believe the adjustment period needs to be extended whether by the Stand By or Extended Fund Facility. Which one we have is academic as long as we get the adjustment period extended).

Public law and order
So I am heartened by the report in the newspaper about the focus of the police commissioner on dealing with law and order issues such as (1) night noise; (2) traffic violations; (3) safe public transportation; and (4) littering. My only question is why did it take so long to realise these need to be focused on? I only hope that this time we are serious about it, as restoring public law and order is the best method to deal with our crime monster. I only hope that the New Kingston police post becomes active and the people who stop along Knutsford Boulevard, while someone goes to buy food, are dealt with as parking in the roads by the police who seem to ignore them. Commissioner you will find that restoring public law and order will lead to other serious crimes being reduced, which I say based on logic rather than any policing experience.

The other areas, which I believe needs focus if we are to create a development environment, are:

* Public sector bureaucracy -- big impediment to business but the way that the prime minister outlined to deal with it is not adequate. There is a fundamental change that needs to take place, which I will not mention here.

* Energy costs -- critical is we are to become competitive in capital intensive investments and resolve our balance of payments problem. The main focus initially should not be on developing LNG plants, but should be a focus on public transportation investment and development and retail consumption. While the NHT facility for households is good, it suffers from bureaucracy and is not facilitative enough. The benefits of addressing these two areas are great and would not only increase competitiveness but also improve living standards and significantly reduce the trade deficit.

* Tax reform as mentioned by the finance minister is critical to development. The December tax package was not good for economic development. One thing I must commend the Minister for is his willingness to look at what has and has not worked and make the changes. The move to simplify taxes for small businesses is a good move. I would go further to agree with Ethlyn Norton-Coke that we must move towards indirect taxation, which would ensure greater compliance and a greater multiplier effect throughout the economy.

If we focus our resources and energy on these areas then this is where we can achieve the greatest value added. Now that the budget debate is over, and the investigations into "who done it", we should now solve the mystery of economic and social development by outlining a detailed plan of action.


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