Saturday, June 12, 2010

Analysing the economy's prospects

Ever since the lower interest rates (through the JDX) and the revaluation of the Jamaican dollar, many have been hailing these signs as a recovering economy. It always amazes me that people always seem to arrive at conclusions prematurely without doing any real analysis of the facts, and this leads to incorrect decisions regarding the future of the country and within companies.

No doubt the lower interest rates and a revalued dollar are positives for the economic framework but by themselves are not sufficient for economic recovery. In fact interest rates and the exchange rate are merely symptoms of an underlying factor, and if we are truly to understand the prospects for the economy then we must carefully analyse the underlying factors and not draw conclusions based on the symptoms.

Carl Ross correctly stated that despite the positive indicators, significant risk still remains in the Jamaican economy, and we are not out of the woods. I had also indicated in my book that in order for the economy to move forward we would first have to go through a period of economic decline for structural adjustments to take place. This is because the problem with the Jamaican economy cannot be solved by merely tinkering with the macroeconomic indicators but needs major surgery because of the flawed social and economic foundation upon which it rests.

Effect of social instability
We have all seen the consequences social instability has on the economy, evidenced by the unrest a couple of weeks ago, and on the economic side growth has always had a deleterious effect on the long-term prospects of the economy. I say that because such a significant part of our production is based on imports that when we increase production we are also increasing our appetite for imports and foreign exchange.

This leads me to the recent revaluation of the Jamaican dollar. While this has been a positive so far for the economy (as it helps to stabilise inflation) the fact is that the revaluation has not resulted from any increase in exports but rather by a decrease in imports as a result of shrinkage in the economy (in fact because of the close relationship between imports and exports, the decline in exports also contributed to the decline in imports). At best what this allows is a temporary reprieve where we can make the necessary adjustments in the economy to ensure this trend continues.

This is reflected in the Balance of Payments (BOP) for the calendar year 2009 when compared to 2008. It shows that although the current account balance improved from a deficit of US$2.8 to US$0.9 billion this resulted primarily because of a significant decline in imports (40%), as a result of the reduction in the price of oil. At the same time exports declined by 49%, and there was also a decline in remittances of 7%.

This decline in remittances stems no doubt from the continuing effects of the global crisis on income levels in the US and UK, as a result of unemployment and decline in real incomes. I expect that the global recovery is going to be a long process and the effects on disposable incomes will linger.

What the BOP shows is that Jamaica still remains at the mercy of oil prices, and this is why I have been saying that the greatest economic challenge to business and Jamaica's economy remains the high energy costs. This is even more so than interest rates, which is really just a symptom of the seriously fractured political, social, and economic infrastructure.

JPS rate hike
The recent furore over the proposed rate hike by the JPS is evidence of the high cost energy has on businesses and the disposable income levels of consumers. The approach we take to arresting costs, however, is not to allow the markets to work but to seek to apply strong-arm tactics and regulatory control. The best way to deal with high mobile phone and electricity charges is simple - implement portability for telephone numbers and net metering for the energy sector. If these simple steps are taken I guarantee that the market will ensure that prices decrease.

Since I put solar panels in place at home I have seen my electricity bill decline from $14,000 to $4,000 per month. This is even before any GCT is applied (which I don't pay because I do not use over 200 KWH) and I am oblivious now to the arguments about rate increases or GCT being applied. This ability is available to all taxpayers as they can get the money for a solar system to borrow from NHT and I guarantee that if implemented properly, the loan repayment will be less than the monthly JPS bill. I also expect that oil prices will go up as soon as Europe sorts out their mess, so rates will inevitably go up in the future.

It is important for us to take advantage of these positive signs in the economy though, as the reduced interest and exchange rates are not sustainable if the correct adjustments are not done to the structure of the economy and social conditions. The decline in these two indicators has more to do with a reduction in demand (and disposable income) than with any economic recovery. In fact the recent numbers show that for the first quarter, while the overall economy declined by only 0.6%, the goods-producing sector declined by approximately 6%, and we need to remember that the services sector always lags behind the goods-producing sector, as without real production taking place the services sector cannot survive without new capital being introduced through loans or new investments. It will be difficult to get new investments unless we deal with our social conditions, the cost of energy, and other factors such as bureaucracy.

Recently some of our listed companies have also shown a decline in profitability, which has resulted primarily from a decline in real income, as they have done a good job of controlling costs, which in plain language means they have reduced real incomes by either reducing staff or reducing operating expenditure. This of course translates to lower disposable incomes and leads to a vicious cycle. A deeper analysis of these company results show that even with the declining incomes they have been faced with inflationary pressures that they cannot pass on.

Over the past two years I have called for a few things to happen if we are to get on the path to recovery - (1) restructure the debt (2) deal with the social conditions as a priority (3) borrow more and invest in addressing the underlying challenges to the economy. As I always maintain, there is nothing wrong with debt as long as the marginal revenue is greater than the marginal cost. I see now that the government is seeking to secure some US$1 billion to address the social and crime conditions, and I for one applaud that effort, wishing that it had come sooner.

For example, at one company we took a strategic decision to finance our operations (and negative current ratio at the time) by financing the operations from payables. So instead of paying in 30 days we would pay in 60 to 90 days while building profitability in the company. It paid off because we were able to carefully identify the market opportunities and chart a plan as to how we would get to profitability. This is the sort of careful planning we need to use when borrowing money.

So the economy is at a crossroads right now. It was necessary for the economy to be given an anaesthetic so that the necessary surgery could be performed but it would be wrong to assume that the stable signs indicate that the patient has recovered. It simply means that the patient is sleeping. In order for full recovery to take place, the surgery must be skillfully done so that on awakening we will have growth that adds to development. It is going to be a long process (as was pointed out by Ross) but if we take the necessary steps to make the economic and social structural shifts then the economy will finally emerge on a path of real development. And there are some simple steps that can be taken to put us on that path.

53 comments: said...

Very Good.

Anonymous said...

Thanks for the auspicious writeup. It if
truth be told was a amusement account it. Look complicated to more introduced agreeable from you!
By the way, how could we keep in touch?

My site raspberry ketone

Anonymous said...

I was suggested this web site by my cousin.
I'm not sure whether this post is written by him as nobody else know such detailed about my difficulty. You are amazing! Thanks!

My webpage: bmr calculator for women

Anonymous said...

Howdy just wanted to give you a quick heads up.
The words in your post seem to be running off the screen in
Ie. I'm not sure if this is a formatting issue or something to do with internet browser compatibility but I thought I'd post to let you know.
The design and style look great though! Hope you get the issue resolved soon.

Also visit my website - diet plan

Anonymous said...

It's not my first time to pay a visit this site, i am visiting this web site dailly and get nice information from here daily.

Here is my website: graduate certificate online

Anonymous said...

Hello There. I found your blog using msn.
This is a really well written article. I'll make sure to bookmark it and come back to read more of your useful information. Thanks for the post. I'll definitely return.

Also visit my blog post: Online Graduate Certificate Programs

Anonymous said...

Hey there! Do you know if they make any plugins to assist with SEO?
I'm trying to get my blog to rank for some targeted keywords but I'm not
seeing very good gains. If you know of any please share.
Appreciate it!

Feel free to surf to my weblog ... bmi calculator for adults

Anonymous said...

Hello, yes this paragraph is genuinely fastidious and I have
learned lot of things from it concerning blogging. thanks.

My blog: how much should i weigh chart

Anonymous said...

Good post. I learn something totally new and challenging on blogs I stumbleupon everyday.
It's always exciting to read articles from other writers and use something from their sites.

My page ... diet plans for women to lose weight fast for free

Anonymous said...

Heya i'm for the first time here. I found this board and I find It really useful & it helped me out much. I hope to give something back and aid others like you aided me.

my page - best diet

Anonymous said...

Hello, just wanted to tell you, I enjoyed this
blog post. It was practical. Keep on posting!

Look into my blog post :: diet plan

Anonymous said...

After I initially left a comment I appear to have clicked
on the -Notify me when new comments are added- checkbox and now each time a comment is
added I recieve four emails with the exact same
comment. There has to be a way you are able to remove me from that service?
Thank you!

Stop by my blog ... waist hip ratio calculator

Anonymous said...

Hey! I could have sworn I've been to this website before but after checking through some of the post I realized it's new to
me. Anyways, I'm definitely glad I found it and I'll be bookmarking
and checking back frequently!

My webpage - waist hip ratio

Anonymous said...

With havin so much written content do you ever run into any issues of plagorism or copyright violation?
My blog has a lot of unique content I've either authored myself or outsourced but it seems a lot of it is popping it up all over the web without my permission. Do you know any techniques to help prevent content from being stolen? I'd truly appreciate it.

Stop by my web page ... how to lose weight quickly

Anonymous said...

After looking over a number of the blog posts on your website,
I truly like your technique of blogging. I
bookmarked it to my bookmark webpage list and will
be checking back in the near future. Take a look at my web site too and tell me your opinion.

My site: fastest way to lose weight

Anonymous said...

This is a topic that's near to my heart... Take care! Where are your contact details though?

Feel free to surf to my page: biznis directory slovenija

Anonymous said...

Fastidious respond in return of this question with firm arguments and telling
the whole thing concerning that.

Also visit my web site - local directories gold coast

Anonymous said...

Every weekend i used to pay a quick visit this web page, as i wish
for enjoyment, since this this web site conations actually good funny data too.

Feel free to surf to my site ... example of science fair research paper

Anonymous said...

Hello there I am so delighted I found your weblog, I really
found you by error, while I was researching on Yahoo for something else, Anyways I am here now and would just like
to say thanks for a incredible post and a all round entertaining blog (I also
love the theme/design), I don't have time to go through it all at the minute but I have bookmarked it and also included your RSS feeds, so when I have time I will be back to read a lot more, Please do keep up the superb work.

Here is my web blog ... bugs bunny t shirts\/children

Anonymous said...

We stumbled over here coming from a different page and thought
I might as well check things out. I like what I see so i am
just following you. Look forward to checking out your web
page again.

Also visit my web site; movie chasing mavericks quote fear and panic

Anonymous said...

Wow, this piece of writing is fastidious, my sister is analyzing
these kinds of things, so I am going to inform her.

Feel free to surf to my webpage Muscle Rev Xtreme

Anonymous said...

Excellent goods from you, man. I have understand your stuff previous to and you're just extremely fantastic. I actually like what you've acquired here, really like
what you are stating and the way in which you say
it. You make it enjoyable and you still take care of to keep it sensible.
I can't wait to read much more from you. This is actually a wonderful web site.

Feel free to visit my blog post ... animal rights essay

Anonymous said...

I'm very pleased to discover this web site. I wanted to thank you for ones time for this particularly wonderful read!! I definitely enjoyed every bit of it and i also have you saved to fav to look at new things in your web site.

my web page: Pro Carolina computer repair

Anonymous said...

It's in fact very complex in this active life to listen news on Television, therefore I simply use web for that purpose, and take the hottest news.

Here is my website: trabajo orquestas

Anonymous said...

Hi, I do believe this is a great website. I stumbledupon it ;) I will revisit
once again since i have bookmarked it. Money and freedom is the greatest way
to change, may you be rich and continue to guide others.

Visit my site; upgrade computer charlotte north carolina

Anonymous said...

Hi there just wanted to give you a quick heads up and let you know a few of
the pictures aren't loading properly. I'm not sure why but I think its a linking issue.

I've tried it in two different internet browsers and both show the same outcome.

my blog university essay

Anonymous said...

whoah this weblog is wonderful i love reading your articles.

Stay up the great work! You know, a lot of persons are looking round for this information, you could aid them greatly.

my webpage movie discussion board

Anonymous said...

Hey I know this is off topic but I was wondering if you knew of any widgets I
could add to my blog that automatically tweet my newest twitter updates.

I've been looking for a plug-in like this for quite some time and was hoping maybe you would have some experience with something like this. Please let me know if you run into anything. I truly enjoy reading your blog and I look forward to your new updates.

My web site; how much should i weigh for my height and age

Anonymous said...

Thanks , I have just been looking for info about
this topic for a long time and yours is the best I have discovered so far.
However, what concerning the bottom line? Are you positive
concerning the supply?

Here is my web blog ... Buy Power Pump XL

Anonymous said...

Heya! I'm at work surfing around your blog from my new iphone 4! Just wanted to say I love reading through your blog and look forward to all your posts! Carry on the superb work!

My site Pay day loans

Anonymous said...

Does your website have a contact page? I'm having trouble locating it but, I'd like to
shoot you an e-mail. I've got some recommendations for your blog you might be interested in hearing. Either way, great site and I look forward to seeing it grow over time.

Check out my web blog: NC computer upgrades

Anonymous said...

A fascinating discussion is definitely worth comment. I do think
that you need to write more on this subject, it might not be a taboo matter
but generally people do not talk about these topics. To the next!
Best wishes!!

Also visit my web page saffron Flower

Anonymous said...

Hey there! I know this is kinda off topic however I'd figured I'd
ask. Would you be interested in trading links or maybe guest authoring a blog post or vice-versa?
My website covers a lot of the same topics as yours and I believe we could greatly benefit from each other.
If you are interested feel free to shoot me an email.
I look forward to hearing from you! Great blog by the

Here is my weblog :: Http://Fumigacion.It-Services.Cl/Node/945837

Anonymous said...

It's remarkable to pay a visit this website and reading the views of all friends on the topic of this article, while I am also eager of getting familiarity.

Here is my website - timber fence painting

Anonymous said...

Hi! I just wanted to ask if you ever have any
trouble with hackers? My last blog (wordpress) was hacked and I ended up losing many months
of hard work due to no back up. Do you have any methods
to stop hackers?

My web site raspberry keytone

Anonymous said...

I am really impressed with your writing skills and also with the layout on
your blog. Is this a paid theme or did you customize it yourself?
Anyway keep up the excellent quality writing, it is rare to see
a great blog like this one nowadays.

Also visit my web-site; acid reflux cure (

Anonymous said...

An intriguing discussion is definitely worth comment. I do think that you should publish more about this issue, it may not be
a taboo subject but generally folks don't talk about such subjects. To the next! Kind regards!!

Take a look at my website :: ultra raspberry ketone

Anonymous said...

Hi there, I enjoy reading through your article
post. I like to write a little comment to support you.

Also visit my webpage: Slim Helper Review

Anonymous said...

Appreciate this post. Will try it out.

Feel free to surf to my webpage fuji mini mite 3 hvlp []

Anonymous said...

I was curious if you ever considered changing the structure of your blog?
Its very well written; I love what youve got to say.

But maybe you could a little more in the way of content so people could connect with it better.

Youve got an awful lot of text for only having one or 2 images.
Maybe you could space it out better?

Also visit my web blog :: Wagner Power Painter Max

Anonymous said...

Licensed service providers would be required to carry Florida
no fault auto insurance ny. Comparing various Auto Insurance Ny
quotes for getting the cheapest Auto Insurance Ny.

And a reliable and prominent allowance agency can help you in the case
of harm or loss. Companies give out discounts for many different variables in the no personal
information when requested.

Feel free to surf to my weblog - cheap auto insurance

Anonymous said...

I love it when folks get together and share thoughts.
Great website, continue the good work!

Also visit my blog post buy nitric power

Anonymous said...

WOW just what I was looking for. Came here by searching
for credit card debt consolidation companies

my web site: fuji hvlp sprayer

Anonymous said...

You can definitely see your enthusiasm within the work you write.
The arena hopes for even more passionate writers like you who aren't afraid to say how they believe. At all times follow your heart.

my web blog hemorrhoids home treatments ()

Anonymous said...

Thanks very interesting blog!

Look into my web site colon care ()

Anonymous said...

If you are going for finest contents like I do, just visit this website every day as it
provides quality contents, thanks

my web blog; fuji mini mite 3 hvlp

Anonymous said...

Greetings! I've been following your website for a long time now and finally got the bravery to go ahead and give you a shout out from Austin Texas! Just wanted to tell you keep up the excellent job!

my webpage: mavericks

Anonymous said...

Useful information. Lucky me I found your web site accidentally,
and I'm shocked why this accident did not took place earlier! I bookmarked it.

Also visit my webpage ... turbo force reviews

Anonymous said...

Hello There. I found your blog using msn. This is a very well
written article. I will make sure to bookmark it and come back to read more of your useful info.
Thanks for the post. I'll certainly comeback.

Check out my web site: local business to business listings

柯云 said...

nike blazers uk
ray ban outlet
ralph lauren polo shirts
hollister clothing store
louis vuitton outlet
nike running shoes for men
nike free uk
insanity workout
coach outlet store online
louis vuitton outlet
oakley vault
coach outlet online
red bottom shoes
beats by dr dre
cheap basketball shoes
oakley sunglasses wholesale
michael kors outlet
cheap ray ban sunglasses
toms outlet
michael kors outlet online sale
tory burch flats
louis vuitton
coach outlet
nike roshe run mens
adidas originals
adidas superstar
louis vuitton outlet
ray bans
michael kors bags
the north face jackets
hollister clothing
adidas running shoes
coach outlet
timberland boots
burberry handbags
louis vuitton handbags
beats by dre outlet
ray ban sunglasses
coach outlet

raybanoutlet001 said...

michael kors handbags
ugg boots
coach outlet
ugg boots
christian louboutin shoes
michael kors outlet
coach bags
ugg boots
ralph lauren outlet
michael kors bags

jeje said...

michael kors handbags
nike huarache
air force ones
kobe sneakers
adidas eqt support adv
adidas gazelle
nike mercurial
ferragamo belt
nike huarache sale
patriots jerseys

Sophi Emma said...

Just Amazing information. I think I’m your big fan because you always come with such a wonderful information and it’s really gonna help us thanks for sharing valuable information with us keep posting Great work