A SWOT analysis of Jamaica's economy

SINCE the start of the year I have received many questions (both locally and internationally) about the prospects for Jamaica's economy in 2011 and beyond. Perhaps more so today than in previous years, persons are understandably more curious about Jamaica's prospects for growth. This is understandable because with the world coming out of a very significant global recession, there are many realignments of investment portfolios taking place, and investors are more cautious, after being ravaged by the global events since 2007.

Investors also are becoming a lot more conscious of global investments, and understand that true diversification is not just among asset classes but more importantly between economies. This is an underlying philosophy that Jamaican policymakers need to understand as we craft policies around the economy. As a result of improvements in technology and investor awareness, there are greater choices across economies when choosing where to put money to work. So that even an individual investor can open an online brokerage account and invest overseas in what they consider a more attractive and predictable environment. This, I believe, will be the scene for investors from 2011 going forward, and will be to the disadvantage of countries that do not get their investment environment right.

One particular question being asked is, what are the prospects for the Jamaican economy and investments in particular? I don't believe that this question can be answered in a "one size fits all" sort of way, as it depends a lot on the type of investment one is involved in. For example, while I believe that there are significant growth prospects for small businesses, it depends on the type of business one is in and the approach to that business development.

What I would therefore like to do in this article is look at a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of the Jamaican economy. This requires much further discourse for anyone looking at an investment or business opportunity.

The table outlines generally the SWOT of the Jamaican economy as I see it, and provides an indication (based on interpretation) of where businesses and investors should be looking for 2011 and beyond.

This table represents a synopsis of some of the strengths, weaknesses, opportunities, and threats. Of course, it requires a whole lot more analysis and with a little more thought we could arrive at a much more comprehensive list. This I believe is the first thing we need to understand if we are to seriously assess and tackle the challenges facing Jamaica. In short, what is needed is a wholesome approach to dealing with Jamaica's economy.

I say, this because over the years governments have taken very good policy decisions on specific issues, without fully understanding the impact it has on other issues. Therefore the net result is that we end up with a net worse situation, as one sector improves by "x" but another worsens by "x + y". This is also the flaw I find in much of the analysis that I have heard over the years. So while persons speak of special interests that sound excellent, there is always the knock-on effect that is not considered.

Strengths

* Tourism product

* Agricultural opportunities (particularly import substitution opportunities)

* Culture, music, sports

* Geographic location

* Bauxite and alumina

* Renewable energy sources supply

* Focus on prudent fiscal management

* Tax administration development

Weaknesses

* Crime and culture of indiscipline and lawlessness

* Poor human rights system

* Poor representation of electors

* Low literacy and poor school governance

* Poverty -- economic dependence

* Inefficient court system

* High cost of energy

* Poor organisation of small businesses

* Unfriendly tax policies

* Political system

* Inefficient bureaucracy

* Poorly structured economic foundation

* Poor infrastructure

* Inaccessible garrison communities

Opportunities

* Global recovery -- increased markets

* Import substitution opportunities

* Renewable energy opportunities

* Poor structure and import dependency means greater opportunities to grow

* Public sector rationalisation

* Tax reform and simplification

Threats

* Global recovery -- inflation, higher interest rates, etc

* Rising oil and commodity prices

* Focus on more investor-friendly emerging economies

* Upcoming election

* Fiscal appetite for revenue

* Inadequate health care

This is the sort of approach I would expect policymakers to take. So if this approach is taken, then why don't we see the results? I am sure that many of the initiatives taken by our politicians and bureaucrats over the years have been good. The problem, I believe, is that many of these initiatives have been taken within the context of the same inefficient structure that created the problem in the first place. So in effect what we end up doing is fixing the symptoms rather than the underlying problem.

This is similar to an organisation trying to improve productivity by giving incentives to workers and preaching teamwork etc. All of this, however, is being done in an environment without effective leadership, management, or rules. The result is that the workers get more of the profits, but productivity and profits, eventually decline.

Although I digressed into the policy holders at the state level, this sort of approach in assessing an economy for investment and business decisions is also very important. So that, to all those who ask the question, if you were considering the economic environment then you would perform first a SWOT analysis of the economy generally. Secondly, you would look at the areas of that analysis that impact you the greatest, and then quantify the effect on your decisions.

When one looks generally at this SWOT for Jamaica over the coming year, it tells me that 2011 is going to be a challenging year for Jamaica, but will also provide significant opportunities for us to move forward as a country. That, however, will depend on the policy decisions that are taken to enhance the strengths, reduce the weaknesses, take advantage of the opportunities, and hedge against the threats.

I have not written a column over the last three weeks, but have taken the time out to listen to much of the commentary and analysis since the start of the year. And after listening, I see a lot of this analysis wanting and see us falling back into the same habits that existed before the great recession.